Template:M summ 2002 ISDA Applicable Close-out Rate
Truly from the I’m sorry I asked file — almost in the shoot me file. This whole game of pan-dimensional chess, with six different interest rates to apply in different circumstances, is all just to work out how to accrue interest on Unpaid Amounts and Early Termination Amounts when closing out. You get a strong sense that the pragmatists of ISDA’s crack drafting squad™ — if there are any — had well and truly tuned out and gone to the bar by the the ’squad got to this definition. Looking on the bright side, at least it doesn’t mention LIBOR.[1]
You have the Default Rate, the Non-default Rate, the Applicable Deferral Rate, and the Termination Rate. Depending on how and why you have closed out the 2002 ISDA, and whether you were at fault, a different rate will apply.
The four rates are:
- “Default Rate” means the payee’s self-certified cost of funding plus 1% per annum.
- “Non-default Rate” means a rate obtained in good faith by the Non-defaulting Party from a major bank in the interbank market for overnight deposits to reasonably reflect prevailing market conditions.
- “Termination Rate” means each party’s self-certified average cost of funding.
All sensible enough, if not a little over-determined — and then the three “Applicable Deferral Rates”, which convert this from something that is merely tedious to the stuff of a Hieronymus Bosch nightmare.
