September 30, 2021 - by Meredith Coffey. The market has been abuzz about the Sanderson Farms loan, the first publicly reported US leveraged loan to sport SOFR pricing. We knew that the pro rata was priced on SOFR out of the gate, while the TLB was priced on LIBOR and then flipped to SOFR after year-end. Well, the pricing structure is (mostly) out. According to Refinitiv, the pricing terms are (approximately) as follows:
- A downsized $500 million TLB firmed at LIB+225, with a flip to SOFR plus a credit spread adjustment, in January 2022
- An upsized $1.25 billion TL A1 launched to syndication at SOFR + ˜11.5 bps spread adjustment + 175 bps
- A $750 million TL A2 farm credit launched pricing at SOFR + ˜11.5 bps spread adjustment + 200 bps
- A $500 million revolver, whose pricing was not just released
A few observations: First, the ARRC recommended spread adjustment for 1M LIBOR contracts that fall back to 1M SOFR is 11.44 bps. That may well have informed the thinking on the new SOFR loans’ spread adjustment. Second, the LSTA recently commented – in print and podcast – about potential new SOFR loan pricing models. We noted that it was possible that the market would adopt a three-part pricing mechanism on new loans: SOFR + negotiated spread adjustment + margin. We encourage LSTA members to be sure their systems – and trading desks – can handle three fields of pricing.