Syndicated loans are trickier to transition to risk-free rates than certain other financial instruments. For the syndicated market to function efficiently using RFRs, calculation methodologies and market conventions will need to be standardised to a substantial degree. Pricing structures will require adjustment compared to LIBOR-based norms. The use of RFRs in place of LIBOR also gives rise to questions about the continuing relevance of certain long-established documentation terms.
To provide market participants with a focal point for evaluating these issues, the Loan Market Association has produced two draft term and revolving facilities agreements referencing RFRs: a sterling facility referencing SONIA and a dollar facility referencing SOFR (the Exposure Drafts).
This briefing highlights some of the key features of the Exposure Drafts of particular interest to borrowers.