Vote or Shuffle (depending on your perspective): US loan markets continue to show interest in credit-sensitive alternatives to SOFR – Finance & Banking



United States: Vote or Shuffle (depending on your perspective): US loan markets continue to show interest in credit-sensitive alternatives to SOFR

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Despite recent regulatory “encouragement” for SOFR to be “preferred” by the ARRC,one we continue to comply with lending agreements in the US credit markets that use a credit-sensitive alternative rate (CSR) for SOFR.2

In fact, a recent review of public records revealed eight registered loan agreements that used CSR, notably the Bloomberg Bank’s Short-Term Yield Index (BSBY). This represents a significant increase over the two non-SOFR transactions we reported earlier. Of the eight public agreements, three use BSBY as the sole interest rate, four provide for either BSBY or base rate loans (with BSBY as the “base rate” component), and one uses BSBY as the second step in changing the benchmark. waterfall between Term SOFR and Daily Simple SOFR.

We have not found any public documents based on Ameribor. The IBA ICE and IHS Markit CRITR Bank Performance Index is still in the testing phase, and the AXI is still under development by the SOFR Academy, so we did not expect to find examples of their use.

Of course, SOFR money supply (which includes, or even mainly bonds, rather than loans) remains modest and has not increased significantly since March 2020, as shown in the SOFR Term Rates Factsheet:


Now that ARRC has officially recommended CME Group published SOFR term, we will closely monitor how the market favors SOFR over CSR.


1. See, for example, ARRC fact sheet – ARRC officially recommends forward-looking SOFR expiration rate (“SOFR Lifetime Fact Sheet”) – Published on July 29, 2021, highlighting, among other things, the strengths of SOFR and prepared a speech by the Chairman of the Securities and Exchange Commission Gary Genslerbefore the Financial Stability Oversight Board on June 11, 2021.

2. We discussed the announced credit rates to date and what we knew about them so far in our previous blog post.
Ini, Mini, Mini, Muse: which LIBOR alternative should I choose?

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