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ARTICLE · 09 DECEMBER 2019

The ARRC Publishes Model Term Sheets For Three SOFR Floating Rate Notes Conventions

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On November 21, 2019, the Alternative Reference Rates Committee (the "ARRC") published an appendix (the "Appendix") to the SOFR matrix of SOFR floating rate notes conventions (the "Matrix"),…

United StatesCorporate/Commercial Law
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Lawrence Hamilton
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On November 21, 2019, the Alternative Reference Rates Committee (the "ARRC") published an appendix (the "Appendix") to the SOFR matrix of SOFR floating rate notes conventions (the "Matrix"), which was published in August 2019. The Appendix contains three "key provisions" for calculating compounded SOFR, a comparison of the three key provisions and a universal SOFR floating rate note ("FRN") fallback provision.1 The three key provisions are lookback, observation period shift and payment delay.

The reason that any of the three provisions might be used by an issuer of a SOFR FRN goes to the nature of SOFR. SOFR is a backward-looking daily overnight rate, as opposed to LIBOR, which is a forward-looking term rate. Among other differences, issuers of LIBOR FRNs and FRN holders know the interest rate for any LIBOR interest period, say three months, at the beginning of the interest period. Consequently, there is certainty and advance notice as to how much interest will be

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