August 9, 2023 - At the request of members, the LSTA has published updated versions of our LSTA Concept Documents. While the vast majority of SOFR loan originations reference Term SOFR, which is used as the benchmark in LSTA forms of credit agreements, there is Daily Simple SOFR and Daily Compounded SOFR loan activity. Given that we understand that LSTA concept documents continue to be useful guides. While we do not plan to maintain these concept documents after this year (e.g., as LSTA form language evolves), the versions published On August 3rd reflect final clarifications based on member feedback. We see these concept documents as being updated through the June 30th LIBOR transition and they will remain available to members on the LSTA website going forward.
- The Daily Compounded SOFR “Compound the Rate” Concept Document and changed pages are available here.
- Updates to Sections 2.08, 2.12 and Schedule 1.01 to clarify that neither paydowns nor repayments can be made on a non-U.S. Government Securities Business Day for SOFR Loans priced using compound the rate. Payments on those days are inconsistent with the Non-Cumulative Compounded Rate formula.
- The Daily Simple SOFR/DCS “Compound the Balance” Concept Document and changed pages are available here.
- If a “SOFR Adjustment” is used, the “SOFR Adjustment”, like “Applicable Margin”, should not be compounded. The concept document now clarifies this – consistent with the ARRC Conventions on SOFR in Arrears. See related updates in footnotes 16, 19 and 38 and Section 2.09(d).
- The Simple RFR Multicurrency Concept Document and changed pages available here.
- Updated for modification to definition of “TARGET2” – see LSTA Advisory.
In other news, while we breathe a collective sigh of relief over the uneventful USD LIBOR transition, there is no rest for the weary! Members are reminded that benchmark transitions in other jurisdictions continue. For instance, the Canadian Dollar Offered Rate (CDOR) will cease after June 2024. While not relevant for our documents, members should be aware of that cessation date and ensure that credit agreements referencing CDOR have appropriate fallback language. The Bank of Canada has chosen Canadian Overnight Repo Rate (CORRA) as the risk-free replacement benchmark for CDOR. There is currently work being done to develop a term version of CORRA which is expected to be available by the end of 3Q2023. Like Term SOFR, the use cases for Term CORRA will be limited – to date that would include trade finance, loans and derivatives on loans.
Please contact Tess Virmani for more information.