Is There Room for AMERIBOR in a SOFR Future?

With the phase out of LIBOR just over a year away and the ARRC having identified the Secured Overnight Financing Rate (SOFR) as its preferred replacement for US dollar loans, it appears that the market has the guidance it needs to make the transition.

Not so fast, say some Main Street banks.  SOFR may work for much of the loan market and particularly larger banks that can borrow on a secured basis. However, this does not represent the reality for many smaller and regional banks, which often can borrow only on an unsecured basis. Using SOFR can lead to a mismatch between the borrowing risk that such banks take and the interest they can earn on their loans.

What are such banks to do?  Some of them have voiced their support for an alternative LIBOR replacement rate―the American Interbank Offered Rate (AMERIBOR).

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Expansion of Main Street Lending Program by Federal Reserve

On June 8, 2020, the Federal Reserve made significant additional changes to the terms of the Main Street Lending Program, aimed at making the program more attractive to small- and mid-sized businesses and to lenders. Changes include decreased minimum loan amounts, increased maximum loan sizes, extended loan terms and deferred principal repayments, among others.

To read the full text of this Duane Morris Alert, please visit the firm website.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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