LIBOR was developed in 1984 as a measure of the real rate at which banks lend money to each other. Since the early 1990s, LIBOR has been used as a funding index for fleet leases. However, when the recent turmoil in the financial markets prompted governments to "backstop" bank borrowing, the cost of lending money began to represent a government-guaranteed rate, which no longer correlated to fleet lessor costs.
Fixed or Floating: Which Lease Funding is Best?
Lease rate funding instruments have become more and more complex. Most lessors recommend floating rate fleet leases. Is there a place for fixed financing any more?