In an announcement made on July 21, the Alternative Reference Rates Committee (ARRC) recommended the use of Loan conventions and Best practices to ensure a smooth transition from the USD LIBOR to the Secured Overnight Financing Rate term rates (SOFR Term Rates).
The Best Practices document outlines the ARRC’s recommendations for the use of the SOFR Term Rate in legacy contracts as well as new contracts.
The SOFR Term Rates will be of particular interest to the business loans market, i.e. multi-lender facilities, middle market loans, and trade finance loans.
The Best Practices recommends also that the use of SOFR Term Rates derivatives be limited to end-user facing derivatives that hedge cash instruments that reference the SFOR Term Rates.