ARRC Releases Recommendations for Intercompany SOFR Loans | Practical Law

ARRC Releases Recommendations for Intercompany SOFR Loans | Practical Law

The Alternative Reference Rates Committee (ARRC) released recommendations for intercompany loans based on the Secured Overnight Financing Rate (SOFR). As outlined in the release, the ARRC recommends that new SOFR-based intercompany loans use the 30- or 90-day Average SOFR set in advance, with a monthly, quarterly, semi-annual, annual, or other reset period as is determined appropriate by the firm.

ARRC Releases Recommendations for Intercompany SOFR Loans

Practical Law Legal Update w-029-4932 (Approx. 4 pages)

ARRC Releases Recommendations for Intercompany SOFR Loans

by Practical Law Finance
Published on 02 Feb 2021 • USA (National/Federal)
The Alternative Reference Rates Committee (ARRC) released recommendations for intercompany loans based on the Secured Overnight Financing Rate (SOFR). As outlined in the release, the ARRC recommends that new SOFR-based intercompany loans use the 30- or 90-day Average SOFR set in advance, with a monthly, quarterly, semi-annual, annual, or other reset period as is determined appropriate by the firm.
On January 29, 2021, the Alternative Reference Rates Committee (ARRC) released recommendations for intercompany loans based on the Secured Overnight Financing Rate (SOFR), the ARRC's preferred alternative reference rate to U.S. dollar (USD) LIBOR. As outlined in the document, the ARRC recommends that new SOFR-based intercompany loans use the 30- or 90-day Average SOFR set in advance, with a monthly, quarterly, semi-annual, annual, or other reset period as is determined appropriate by the firm.
According to the release, 30- and 90-day Average SOFR incorporate several beneficial attributes that make these rates preferable to USD LIBOR, as they:
  • Are highly robust and produced by the public sector in a way that is easily communicated and accessed by global authorities and private sector participants alike.
  • Can be used within the current systems for intercompany loans and do not necessitate significant changes to implement.
  • Represent sound, fit-for-purpose rates for intercompany loans that can be used immediately, not only for USD-based loans but also for loans denominated in a range of other currencies.
These recommendations were developed by members of the ARRC’s Nonfinancial Corporate Working Group (NCWG), which focuses on supporting non-financial corporations throughout the transition. The NCWG represents over 80 non-financial corporations across a wide set of sectors and coordinates actively with institutions on issues relevant to non-financial corporations, such as intercompany loans, back-office systems and the readiness of software vendors to accommodate needed changes, along with structures and conventions for borrowings by non-financial corporates, including syndicated and bilateral loans as well as special-purpose facilities to finance their working capital needs and capital equipment purchases.