The Alternative Reference Rates Committee ("ARRC") recommended business loan conventions and best practices for the forward-looking Secured Overnight Financing Rate term rates ("SOFR Term Rates").
The ARRC stated that it supports the use of SOFR Term Rates in areas where the transition from LIBOR to an overnight rate has proven difficult, including for business loan activity, and particularly with multi-lender facilities, middle market loans and trade finance loans. The ARRC stated, however, that it does not support the use of SOFR Term Rates for most of the derivatives markets. The ARRC's best practice recommendations support the use of SOFR Term Rates in end-user facing derivatives that hedge cash instruments linked to the term rates, and certain securitizations with underlying assets that are themselves tied to SOFR Term Rates.
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