September 16, 2021 - by Meredith Coffey. The past week was a significant one for post-LIBOR developments. First, the inaugural U.S. SOFR institutional term sheet was spotted. Second, continuing our support also for all potential replacement rates, the LSTA released a zoomcast explaining AXI, the Across the Curve Credit Spread Index. We discuss both below.
Last week, Covenant Review (followed this week by the FT and Bloomberg) announced that they had seen their first Term SOFR term sheet, one for a loan financing the acquisition of Sanderson Farm. The structure was reported as:
- A revolver/TLA priced on SOFR at issuance
- An institutional tranche price on LIBOR until 12.31.21 and thereafter on SOFR
The SOFR loans start on Daily Simple SOFR but move to Term SOFR if administratively feasible, while the spread adjustment for SOFR – which is lower than LIBOR – would be determined later.
A couple of comments: First, the architecture of “Simple SOFR” with a flip forward to Term SOFR is described in the LSTA Daily Simple SOFR Concept Credit Agreement; the development of this document predated the existence and recommendation of CME Term SOFR. Second, as the LSTA has discussed in video and writing, with interest rates sitting near zero, determining an appropriate spread adjustment has its challenges. Still, it must – and will – be done in the coming weeks and months.
While this movement on SOFR institutional loans is (very!) notable, SOFR is not the only potential replacement rate for LIBOR and the LSTA is committed to helping the loan market effectuate all potential replacement rates. To that end, on Monday, the LSTA posted a video by SOFR Academy focusing on the “Across the Curve Credit Spread Index (AXI)”, a robustly defined credit spread add-on to SOFR. This presentation joins other CSR zoomcasts on the LSTA podcast page, as we look to provide necessary LIBOR transition resources for our members.