Use this button to switch between dark and light mode.

Trends in SOFR Spread Adjustments and Rate Floors

October 18, 2022

The ARRC recommends using the five-year historical median difference between LIBOR and SOFR (set on March 5, 2021) as the default spread adjustment. However, Practical Guidance’s Market Standards shows that most recent deals have trended away from using the AARC's recommended spread adjustment.

Market Standards is a searchable database of publicly filed credit agreements and commitment letters enabling users to search, compare, and analyze credit agreements using approximately 90 detailed deal points and commitment letters using approximately 70 deal points to filter search results.

Click here to access credit agreements on Market Standards

According to data from Market Standards:

  • Out of 100 deals reviewed since May 2022, none of the credit agreements included the AARC recommended spread adjustment. Most deals analyzed used a flat credit spread adjustment of 0.10% (10 bps) for Term SOFR.
  • 13 out of 100 deals used a spread adjustment based on two or more of the interest (e.g., one month (10 bps), three months (15 bps), and six months (25 bps)), but since June 2022, most deals included a flat spread adjustment of 10 bps. See Sunpower Corporation and Trex Company, Inc.
  • Eight deals out of 100 had no spread adjustment. See Verisk Analytics, Inc., Malibu Boats, LLC, and Take-Two Interactive Software, Inc.
  • A recent deal reviewed provides that if the administrative agent and the borrower subsequently determine that credit spread adjustments are not being required generally in SOFR-based term loan A facilities for similarly rated borrowers, the term SOFR adjustment will be reduced to 0.00% for subsequent interest periods. See GLP Capital L.P.
  • The benchmark rate floor for term SOFR loans typically is 0%. However, a few deals included a floor of .5% or 1%, or other alternative floor for term SOFR loans. See 8x8, Inc.

For more information, see our Credit Spread Adjustment Tracker.

Read Now »

Related Content

  • Alternative Reference Rate Loans Tracker
    Check out this tracker identifying new publicly filed loans with interest rates based on reference rates other than SOFR or LIBOR from the first half of 2021 through the present.
  • LIBOR Replacement Checklist
    Use this checklist of issues to consider in implementing and documenting non-LIBOR interest rates in commercial loan transactions. This checklist serves as a general guideline for counsel representing a party in a commercial loan to be used along with consideration of transaction-specific issues.


Practical Guidance Updates
Featuring the latest updates from your Practical Guidance account.


Experience results today with practical guidance, legal research, and data-driven insights—all in one place.

Experience Lexis+

Tags: