On February 26, 2020, the LSTA released a revised draft to its Compounded SOFR in Arrears “concept credit agreement”, which was initially released on October 1, 2019 (see a brief summary of the initial concept credit agreement). In addition to bringing the concept credit agreement current with other LSTA form changes, the update addresses comments received from market participants on the initial draft:
- makes some adjustments to the “Compounded SOFR” definition to reflect comments from the ARRC in its SOFR Index release (see a brief summary of the ARRC’s SOFR Averages and Index release);
- adds language to address the possibility for a transition to a forward-looking Term SOFR Rate (which doesn’t currently exist but could be established in the future);
- adds the 30-day Average SOFR (as noted above, now being published by the New York Federal Reserve) as a base rate option to the definition of “ABR”;
- calls out some potential timing issues with the lookback with observation shift that should be considered, in the footnote to the “Observation Period”;
- adds a new “Compensation for Losses” provision to address possible losses associated with intra-period prepayments.
Market participants continue to offer comments to the LSTA on how to address the adoption of SOFR as an index rate in credit agreements, and we will continue to track the evolution of SOFR based contract provisions in the McGuireWoods’ LIBOR Transition Blog.