What Borrowers Should Expect in the Transition to SOFR

Freddie Mac catalyzed the transition to SOFR as the alternative to LIBOR late last year, and already many lenders have followed suit. By the end of the year, it is likely that most lenders will have adopted SOFR language in their loan documents, and borrowers should note the adjustment. Both current borrowers and owners with existing loans could see the change.

“On new loans and certain loan modifications, borrowers can expect to see new alternate index language in their loan documents,” Jennifer Bojorquez at Troutman Sanders tells GlobeSt.com. “We’ve been notified by several lenders in recent weeks of the inclusion of revised alternate rate provisions on new loans and on modifications involving maturity date extensions or payment terms.  On existing loans, and again depending on the terms in the loan documents, borrowers should not be surprised to receive notification from their lenders that their loans are being transitioned to SOFR or that the loan documents need to be modified to address LIBOR termination.”

While the loan language may change, the overall interest rate shouldn’t change at all or in a way that substantially impacts the loan. “The SOFR interest rate number may not be the same as the LIBOR interest rate number, the all-in interest rate (index plus spread) should be roughly equivalent to their existing interest rate,” says Bojorquez.