Libor reaching point of pain for firms with high debt

New York

SHORT-term borrowing rates are rising to the point where some heavily indebted US companies can no longer ignore them.

A benchmark for near-term borrowing, the three-month US dollar London interbank offered rate, has risen above 0.75 per cent. That's a key threshold for junk-rated companies with about US$230 billion of loans outstanding, according to data compiled by Bloomberg - with Libor above that level, the borrowers will have to pay more interest over time. The increase so far could amount to about an extra US$230 million of total interest expense annually for the companies.

Companies that took out floating-rate loans knew they would have to pay more to borrow once rates started rising, but they haven't experienced real increases for years. Even when the Federal Reserve started hiking rates in December, many companies did not have to pay higher ra…