Those provisions arose out of fears that the US government might prohibit LIBOR loans as an attempt by banks to avoid US regulation by funding themselves outside of the United States
3pound daily SOFR The waterfall in the Refreshed Hard-wired Recommendations provides that the second level of the waterfall is simple SOFR rather than compounded SOFR. The use of simple SOFR may facilitate sales of loans in the secondary market. It is possible that some lenders and some borrowers may prefer compounded SOFR so that the calculation of the interest rate on the loans is consistent with the way SOFR is calculated in any related interest rate hedges.
4. e., if LIBOR is actually less than a specified rate, LIBOR will be deemed to equal the specified rate for purposes of calculating interest). These floors generally range between zero and 1 percent and protect lenders in the event that LIBOR falls below the floor. The Refreshed Hard-wired Recommendations provide that, for purposes of a SOFR-based fallback rate, the sum of SOFR plus the spread adjustment cannot be less than the floor. That is appropriate because the sum of SOFR plus the spread adjustment is the replacement for LIBOR. In negotiating new SOFR credit agreements, borrowers may take the view that whatever floor was agreed to in the context of a LIBOR-priced loan should be reduced (or eliminated) in determining a floor for a SOFR loan since SOFR will almost always be a lower rate than LIBOR. 12
5. Eliminate breakage cost compensation Credit agreements currently provide that if a borrower repays a LIBOR-priced loan on a day other than the last day of an interest period, or if it fails to borrow a LIBOR loan that it requested, it must pay to the lenders any applicable broken funding cost. 13 The obligation to pay breakage for LIBOR-priced loans arose out of the structure of the London interbank market, in which banks made loans by buying certificates of deposit that did not permit prepayments. Weiterlesen
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