---
title: "SOFR (Secured Overnight Financing Rate) | Altss Glossary"
description: "SOFR is a common floating reference rate used as the base for U.S. loan pricing."
canonical: "https://altss.com/glossary/sofr-secured-overnight-financing-rate"
---

Private Credit

# SOFR (Secured Overnight Financing Rate)

Publisher: Altss LLCPublished 2026-01-12Content modified 2026-01-12

SOFR is a common floating reference rate used as the base for U.S. loan pricing.

**Allocator relevance:** High — drives coupon mechanics and rate sensitivity in floating-rate private credit portfolios.

**Expanded Definition**
Loans often price as **SOFR + Spread (Margin)**, sometimes with floors, caps, and day-count conventions. SOFR replaced LIBOR as a market standard in many contracts, making fallback language and reference-rate conventions a diligence point. Allocators evaluate how a manager underwrites base-rate risk, whether loans include floors that protect yield in low-rate environments, and how interest rate changes transmit to borrower coverage ratios (e.g., DSCR).

**Decision Authority & Governance**
Governance includes documentation standards (reference rate definition, fallback provisions), hedging policy, monitoring of borrower rate sensitivity, and covenant design that triggers earlier engagement under stress.

**Common Misconceptions**

- SOFR is fixed.

- SOFR alone equals borrower cost.

- Base-rate shifts affect every loan equally (floors/hedges differ).

**Key Takeaways**

- SOFR sets the base; spread sets risk compensation.

- Floors and fallbacks matter materially.

- Rate regimes change borrower coverage and default risk.

## Related terms

[Credit Spread](https://altss.com/glossary/credit-spread)[Duration](https://altss.com/glossary/duration)[Covenant Package](https://altss.com/glossary/covenant-package)

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