APLMA Seeks Consensus on SOFR-based Loan Facilities in APAC

New discussion drafts cover the use of SOFR for USD loan facilities in APAC, one using the compounded average approach and the other based on Daily Simple SOFR.

APLMA (Asia Pacific Loan Market Association) has issued new discussion documents on SOFR-based syndicated loan transactions in Asia Pacific, as well as an explanatory Guidance Note.

“The documents represent an important milestone in the development of RFR-based transactions in APAC, and we are pleased to be able to assist market participants in their transition away from LIBOR,” APLMA said in a message from its CEO, Andrew Ferguson.

Both discussion documents cover the use of SOFR for USD loan facilities in Asia Pacific, one using the compounded average approach and the other based on Daily Simple SOFR.

Two documents have been produced instead of one as no consensus has yet been reached on which calculation methodology to adopt, Ferguson said in a recent interview.

“A decision was made democratically that we should produce two documents, one on the simple basis, and one on the compounded basis, on the assumption that we let the market decide.”

Rather than prescribing recommended forms, standard templates or methodologies, the discussion drafts are intended to stimulate discussion and debate on various key elements of RFR-based loan facilities, including the decision as to which calculation methodology lenders and borrowers should adopt.

The accompanying Guidance Note explains the construction of the discussion drafts and why certain language, definitions and methodologies have been used.

The documents and Guidance Note, available to APLMA members here, are open for comment until 4 December.

According to Ferguson, APLMA also plans to prepare a ‘switch document’, presenting guidance for switching to an RFR if a defined trigger event occurs, and a ‘generic amendment document”, which will help firms amend legacy contracts expire after end-2021.

In addition, APLMA plans to amend its whole suite of documents as part of the transition from IBORs to the new RFRs. This includes documents based on Hong Kong, Singapore, Australian, Taiwanese and English law, among others

“That’s just an enormous task. That’s going to take up a lot of our time next year. And I expect our budget as well,” Ferguson said.

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