Documenting SOFR Loans: 8 Things for Borrowers to Think About opublikowano Maj 6, 2022

Although the borrower community has been actively involved in the negotiation of fallback provisions, borrowers in the United States have not had much of an opportunity to express their views on documentation for SOFR-priced loans

Bankers, lawyers and others involved in the loan markets transition from LIBOR to another reference rate have spent much of the past two years thinking about and drafting fallback provisions-the section of a loan agreement that describes what happens if LIBOR is not available. Now that the likely disappearance of LIBOR is less than a year and a half away, and the Alternative Reference Rates Committee (ARRC) has identified the Secured Overnight Financing Rate (SOFR) as the likely successor to US dollar LIBOR, market participants are spending more time thinking about how to document loans that provide for interest accruing at a rate based on SOFR.

Here is a list of things that may be proposed by borrowers in the negotiation of a SOFR credit agreement and, in a syndicated financing, ong lenders:

  • There are a handful of precedent deals, including credit facilities for Royal Dutch Shell plc and British American Tobacco. 1 Their utility in preparing documentation in the United States is limited since they are governed by English law; they are somewhat dated (from , respectively); and, instead of providing for SOFR pricing at the outset, each has a so-called “switch mechanism” providing for a change in pricing from US dollar LIBOR to SOFR in the future. 2
  • The LSTA has prepared various draft “concept documents”-model credit agreements (governed by New York law) that provide for loans priced at a rate based on SOFR. (więcej…)