medium · Corporate Credit Analysis cap-structure

If a unitranche facility includes a 1.5% SOFR floor and SOFR rises from 1.0% to 2.0%, what happens to the internal margin spread received by the FO and LO lenders?

1. The margin spread stays fixed contractually over the base rate; a base rate move alone never changes it.
2. The total interest paid by the borrower decreases once SOFR climbs above the stated floor rate.
3. The effective yield for both lenders increases as they now receive SOFR instead of the floor.
4. Only the first-out lender benefits from the rise in SOFR above the stated 1.5% floor level.

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