LIBOR-based consumer and commercial loans transitioned as follows:
Consumer LIBOR-based loans transitioned to a spread-adjusted term Secured Overnight Financing Rate (“Consumer Spread-Adjusted Term SOFR”) as published by
Refinitiv after LIBOR ended. Consumer Spread-Adjusted Term SOFR is based on the CME Group’s term Secured Overnight Financing Rate (“Term SOFR”) plus a spread adjustment. The spread adjustment is equal to a five-year historical median spread between LIBOR and SOFR, with a portion of the spread adjustment phased in over the course of one year. The spread adjustment is meant to generally equate the two indexes.
Commercial LIBOR-based loans transitioned to a spread-adjusted term Secured Overnight Financing Rate (“Institutional Spread-Adjusted Term SOFR”) published by Refinitiv. Institutional Spread-Adjusted Term SOFR is based on the CME Group’s Term SOFR plus a spread adjustment. The spread adjustment is equal to a five-year historical median spread between LIBOR and SOFR and it is fully applied without a phase-in period. The spread adjustment is meant to generally equate the two indexes.
We, and the Alternative Reference Rates Committee, believe that both selected indexes represent fair, reasonable and comparable substitute indexes. This LIBOR to SOFR transition approach was also endorsed for loans like yours by the Adjustable Interest Rate (LIBOR) Act of 2021, which was signed into law in March 2022.
A small number of LIBOR-based loans had promissory notes that specified a different replacement index. These loans were transitioned to the replacement index specified therein.