LIBOR to SOFR Rate Adjustment
Interested to hear what people are seeing from their lenders with regards to rate adjustments on their floating rate loans that were originated with LIBOR. We've had one lender do a straight conversion (1mo LIBOR to 1mo Term SOFR) with no adjustment. Another offering a 0.10% adjustment increase. I believe the AARC fallback recommendation was 0.11448% increase.
10 bps adjustments is primarily what I've been seeing
I've seen CSA's mainly range from 10-15bps.
We're doing .1148% exact. If the docs allow, the floor will be reduced by the same but sometimes can get both even tho the floor is meaningless at this time
My bank is also doing .1148… this is probably the standard? If it is swapped, the same all-in rate will apply.
Lender here, 11.448 bps adjustment.
1148 as well
For any less familiar readers, with LIBOR being phased out as an index rate, existing floating rate loans using LIBOR indexes are being amended to convert to SOFR index. It's not a 1:1 transition, meaning LIBOR and SOFR don't equal each other. What most have done is looked at how each index has priced relative to the other over a certain amount of history and come up with an "adjustment" that would theoretically bridge that gap. So if SOFR has historically priced 10 bps lower (or 0.10% or 0.001), the borrower isn't suddenly paying 10bps less in interest, or vice versa. The new rate under the amendment is basically now SOFR + 10bps + existing spread. No perfect solution but this is being considered a framework of a suitable approach
Does the adjustment apply to new lenders?
If a property has L+200 debt with an upcoming maturity, does that mean a new lender would quote SOFR + 11.448 bps + new spread? Or would it just be SOFR + new spread?
In the scenario above, we're uw new debt at SOFR + 300... should we be doing SOFR + 11.448 + 300 to be more accurate? Is there an argument to be made that the 300 already contains the spread adjustment?
No. The 11 bps is only for existing loans that are converted to SOFR. Quoting new business like that would be weird.
Existing only. SBPref summed it up
Zero adjustment from LIBOR -> SOFR is just giving money away as a lender. I’m shocked that ANY lenders are providing that.
Do you know why the adjustment is done? Is it something fundamentally different in the way SOFR is calculated?
It’s based on the historical average spread between the two.
We do somewhere between 10bps and 11bps.
All of the above
We started at 11.448 but have been at 10 for some time now. We just did 6 for a client, but that appears to be a one off.
How are you guys adjusting various LIBOR terms to the respective SOFR terms? For example: 1m LIBOR vs 3m LIBOR converted to SOFR + adjustment spread.
I’m on a rates desk and we convert these all day long. The 11.48 is not actually visible in the market which is where the people above are getting the 10-11.48 range; this mostly has to due with demand being very high right now, and we will slowly converge to 11.48 in the next few months.
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