What Is the Credit Adjustment Spread?

The credit adjustment spread (CAS) — also called the credit spread adjustment (CSA) — is a fixed number of basis points added on top of a SOFR-based rate to approximate what LIBOR would have paid. It exists because SOFR and LIBOR are not the same kind of rate, and swapping one for the other without an adjustment would have quietly shifted value between borrowers and lenders on every outstanding contract.

It shows up in two very different contexts: as a legacy fallback for old LIBOR contracts that transitioned automatically to SOFR, and as a negotiated margin add-on that some new SOFR loans still include. Those two uses are often confused, so it's worth separating them.

Why SOFR Needed an Adjustment at All

LIBOR was an unsecured, bank-to-bank borrowing rate. It embedded a bank credit-risk premium — during periods of stress, LIBOR would rise because the market perceived more bank credit risk, even if central bank policy rates hadn't moved.

SOFR is different by design. It's a secured rate, backed by US Treasury collateral in the repo market, and it reflects transaction data rather than bank estimates. That makes it more robust and harder to manipulate, but it also means SOFR sits structurally lower than LIBOR — there's no bank credit premium built in.

Swap a LIBOR-referencing loan or bond over to raw SOFR and, all else equal, the lender receives less interest than they would have under LIBOR. The CAS was designed to close that gap.

How the ARRC and ISDA Set the Legacy CAS Values

For derivatives, the International Swaps and Derivatives Association (ISDA) ran a multi-year consultation process and settled on a historical mean/median approach: the spread would be fixed as the five-year historical median difference between USD LIBOR and compounded SOFR, locked in on March 5, 2021 — the date the UK Financial Conduct Authority confirmed LIBOR's cessation dates.

The Alternative Reference Rates Committee (ARRC), the Fed-convened group that led the US transition, adopted the same values for cash products — loans, floating rate notes, and securitizations — so that fallback spreads would be consistent across derivatives and the underlying loans that use them to hedge. Per the ARRC's official summary, published through the Federal Reserve Bank of New York, the locked-in spread adjustments were:

LIBOR Tenor Replaced	Spread Applied to SOFR-Based Rate
1-week	3.839 bps
1-month	11.448 bps
2-month	18.456 bps
3-month	26.161 bps
6-month	42.826 bps
1-year	71.513 bps

These numbers are static — they don't move with market conditions. The ARRC considered a dynamic, continuously updating spread but found in its historical analysis that a fixed spread based on the five-year median produced comparable or better accuracy than a floating alternative tied to unsecured funding markets that, by then, had grown too thin to be reliable.

For consumer products (residential ARMs, some student loans), the ARRC added a one-year linear transition period so borrowers wouldn't see a sudden jump or drop in their rate the moment LIBOR stopped — the spread converges gradually from the recent LIBOR-SOFR gap to the long-term fixed value.

Legacy Fallback vs. New-Issue Loans: Two Different Things

It's important not to conflate the ARRC/ISDA fallback numbers above with what shows up in a brand-new SOFR loan agreement today.

The ARRC was explicit that its recommended spread adjustments were meant for contracts that had no other way to transition — legacy LIBOR loans and bonds with fallback language that pointed to a SOFR-based replacement. For new contracts negotiated directly in SOFR, the ARRC encouraged borrowers and lenders to set pricing based on competitive market forces rather than adopting the fallback spread mechanically.

In practice, market participants tracking the leveraged and syndicated loan markets have observed that new-issue SOFR loans increasingly drop the CAS altogether, folding any residual difference into the base margin instead. Where a CAS is still included, it's frequently a simple flat spread (commonly cited around 10 bps across all tenors) rather than the tenor-based ARRC/ISDA curve — a much simpler convention than the legacy fallback structure. Always check the credit agreement itself; there's no single "market standard" figure that applies to every deal.

Where You'll Still See a CAS Today

Legacy LIBOR contracts that lacked robust fallback language and transitioned via ARRC-recommended fallbacks or the New York and federal LIBOR legislation enacted to handle "tough legacy" contracts.
Legacy derivatives that adhered to the ISDA 2020 IBOR Fallbacks Protocol.
Some new bilateral or middle-market loans, as a negotiated (not mandated) feature, usually as a flat spread rather than the original tenor curve.
Consumer ARMs and student loans that fell back under the ARRC's consumer product recommendations, subject to the one-year transition mechanism described above.

You generally will not see a CAS in derivatives or loans that were originated directly in SOFR from the start with market-negotiated pricing — those already reflect current market terms without needing a historical adjustment.

Why This Matters for Your Loan Calculation

If you're calculating interest on a loan, the CAS (when present) is simply an additive spread on top of whatever SOFR rate convention the loan uses — Term SOFR, Compounded SOFR in Arrears, or a SOFR average. It doesn't change how SOFR itself compounds or how the day-count convention (typically Actual/360 for USD loans) applies; it's added to the reference rate before the day-count and compounding math is done, alongside the loan's own credit margin.

Because CAS treatment varies so much between legacy and new-issue deals, the only reliable source is the credit agreement or fallback provisions governing your specific facility — don't assume a number without checking.

Calculate Your SOFR Loan

Whether your loan uses Term SOFR, Compounded SOFR in Arrears, or includes a credit adjustment spread, our free RFR Loan Calculator handles the full calculation — including any additional spread — with a daily rate ledger and Excel export.