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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.

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