5 November 2021

Term SOFR Is Here; Where Is The Joy?

Mayer Brown


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On July 29, 2021, the Alternative Reference Rates Committee ("ARRC") formally recommended the CME Group's forward-looking term SOFR rates ("Term SOFR").
United States Finance and Banking
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On July 29, 2021, the Alternative Reference Rates Committee ("ARRC") formally recommended the CME Group's forward-looking term SOFR rates ("Term SOFR").1 For the floating rate note market, this seemed to be a perfect replacement for LIBOR. Term SOFR is forward-looking, like LIBOR, allowing the interest rate and payment to be determined well in advance of the interest payment date, without the complicated compounding formulae required to transform daily SOFR into a term rate in arrears. A spread could be used to make up for the other differences between LIBOR and SOFR.

The ARRC made several statements about their view of the best uses of Term SOFR:

  • The ARRC supports the use of Term SOFR for the business loan market, particularly multi-lender facilities, middle market loans, trade finance loans and certain securitizations;
  • The ARRC does not support the use of Term SOFR for most derivative transactions. Term SOFR should be used only for end-user facing derivatives intended to hedge cash products that reference Term SOFR;
  • The ARRC supports Term SOFR in the replacement fallback waterfall in existing USD LIBOR floating rate notes, and as the first SOFR rate that would be recommended by the ARRC under Article 18-C of the New York General Obligations Law; and
  • For new floating rate notes, the ARRC recommends overnight SOFR and SOFR averages.2

These statements are somewhat disappointing for those looking forward to using Term SOFR in new issuances of floating rate notes. We will have to await market developments and practices to see if issuers (particularly corporates) start issuing Term SOFR floating rate notes.


1. ARRC_Press_Release_Term_SOFR.pdf, (

2. See generally ARRC Best Practices Relating to the Scope and Use of the Term Rate at: ARRC_Scope_of_Use.pdf, (

Originally published in REVERSEinquiries: Volume 4, Issue 5.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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