easy · Corporate Credit Analysis ratings

In a L + 350 bps TLB with a 1.00% SOFR floor, what happens to the interest rate if SOFR falls to 0.50%?

1. The rate falls to 4.00% because the spread is always constant.
2. The borrower must pay a 1% penalty fee for the rate being too low.
3. The rate falls to 0.50% because the margin is suspended in low-rate periods.
4. The rate stays at 4.50% because the floor protects the lender's minimum yield.

Sign up free to see the explanation and track your rank →