The scandal surrounding the London interbank offered rate is threatening to undermine confidence in syndicated loans and hasten companies' flight to bonds.

“What corporate treasurers are concerned about is the damage this Libor problem will do to market confidence,” said John Grout, the policy and technical director at the Association of Corporate Treasurers in London, which has about 4,500 members. “If people lose trust in banks and Libor, which is indexed to a huge amount of debt and derivatives instruments, market liquidity could be reduced and borrowing costs could rise for corporates.”

Corporate loans typically pay interest pegged to Libor or its equivalents in other currencies, and the rate-rigging scandal is spreading uncertainty about whether the benchmarks reflect lenders' true cost of funding. At least a dozen banks are being investigated for manipulating Libor, prompting Barclays Plc Chief Executive Officer Robert Diamond to quit last week after the U.K.'s second-biggest lender was fined a record $451 million.