Hotel Borrowers, Lenders Prepare for Transition of Debt Benchmark

Hotel owners and financiers are confronting the phase-out of a longstanding interest rate benchmark as they address the impact the pandemic has had on borrowers' ability to repay loans.

Global financial regulators agreed to start phasing out the use of the London Interbank Offered Rate — commonly referred to as LIBOR — as the benchmark for short-term interest rates in favor of the Secured Overnight Funding Rate at the end of this year. Debtors and creditors who have reached agreements for floating-interest-rate hotel loans in recent years will be obligated to account for the switchover that's slated to be completed by mid-2023.

Daniel Lesser, president and CEO of New York-based consultant and hospitality-valuation firm LW Hospitality Advisors, said loan documents "vary dramatically" in how they address the change in the standard.