‘Covered Modifications' And LSTA's New SOFR Amendment Forms

On June 21, 2022, the Loan Syndications and Trading Association ("LSTA") published its final form documents for loan parties amending credit agreements to replace London Interbank Offered Rate ("LIBOR") with Term Secured Overnight Financing Rate ("SOFR"). The LSTA forms include templates for both broad-ranging, consensual amendments, which give the parties greater latitude to change existing terms to their credit agreements, as well as more narrowly tailored amendments designed to implement Term SOFR and related terms. A broad overview of the LSTA amendment process and forms can be found here.

Loan parties can use the LSTA forms generally without raising significant tax concerns. However, tax practitioners should pay careful attention that the terms of a specific amendment satisfy the final section 1.1001-6 regulations in order to avoid a taxable event. Very generally, under these regulations, an amendment that is a "covered modification" is not taxable under