The scandal surrounding the London interbank offered rate isthreatening to undermine confidence in syndicated loans and hastencompanies' flight to bonds.

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

Corporate loans typically pay interest pegged to Libor or itsequivalents in other currencies, and the rate-rigging scandal isspreading uncertainty about whether the benchmarks reflect lenders'true cost of funding. At least a dozen banks are being investigatedfor manipulating Libor, prompting Barclays Plc Chief ExecutiveOfficer Robert Diamond to quit last week after the U.K.'ssecond-biggest lender was fined a record $451 million.

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