LIBOR Meets SOFR

In our first client alert about LIBOR's passing, "LIBOR"s Long Good-Bye" (the First Alert), we suggested that borrowers of U.S. Dollars prepare themselves for the end of the London Interbank Offered-Rate (USD LIBOR), by understanding the replacement rates suggested by lenders. As we noted, it is almost certain that the daily Secured Overnight Financing Rate (SOFR) will have some place in the spectrum of replacement rates, but there are issues to be worked on prior to adopting SOFR.

SOFR (which has been recommended by the Alternate Reference Rates Committee (ARRC) since 2017) is a rate published daily by the Federal Reserve Bank of New York reflecting the cost of overnight borrowings secured by U.S. Treasury securities. Unlike USD LIBOR (which depends on submissions by lenders as to their costs of interbank borrowing), SOFR is a virtually risk-free rate and has impressive credibility - it (i) has an enormous underlying transaction value (averaging daily between $700