A forward-looking term rate based on the Secured Overnight Financing Rate (SOFR). Term SOFR is commonly used in the US loan market as a replacement reference rate for USD LIBOR, which has been phased out as a reference rate.

The Alternative Reference Rates Committee (ARRC) has identified SOFR as the most suitable alternative reference rate for USD LIBOR and, according to market commentators, Term SOFR is the preferred replacement rate for LIBOR among US syndicated loan market participants. Other USD LIBOR-alternative reference rates include Daily Simple SOFR and credit sensitive rates, such as BSBY and Ameribor.

On July 29, 2021, the ARRC announced its formal recommendation of CME Group's forward-looking SOFR term rates. On the same date, the Loan Syndications and Trading Association (LSTA) issued a statement in support of the ARRC recommendation, noting that all parties that wish to use Term SOFR for loan or CLO origination can do so going forward. According to CME Group, the CME Term SOFR Reference Rates provide an indication of the forward-looking measurement of overnight SOFR based on market expectations implied from derivatives markets.

For more information on Term SOFR and LIBOR transition, see Practice Note, What's Market: LIBOR Interest Rate Provisions.