Determining Spread Adjustments for SOFR Loans
This article discusses credit spread adjustments related to the differential in rates between LIBOR and SOFR. While LIBOR and SOFR historically trend together, LIBOR is generally higher than SOFR. Due to the difference in these rates, the Alternative Reference Rates Committee (ARRC) has recommended that a credit spread adjustment be added to SOFR to compensate for the difference between the two rates. This article includes links to related practical guidance, including the Credit Spread Adjustment and Rate Floor Tracker analyzing recent market trends in SOFR spread adjustments.