Interest Rate Provisions in Credit Agreements (SOFR)

Summary

This practice note describes two pricing options frequently included in syndicated credit agreements—one based on the base rate and the other based on the Secured Overnight Financing Rate (SOFR). The use of SOFR as an interest rate option has become the predominant approach in the market following the cessation of some durations of the London Interbank Offered Rate (LIBOR) in 2021 and the complete cessation of LIBOR in June 2023. This practice note focuses on SOFR as the successor rate to LIBOR in credit agreements because it has been broadly deployed across syndicated credit transactions as the replacement option for loans made in U.S. dollars.