medium · Corporate Credit Analysis

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 margins increase for both lenders.
2. The total interest paid by the borrower decreases.
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.

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