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In a Nutshell™ Section 5(c)(ii):
- 5(c)(ii) Interest Payment (VM). Subject to Paragraph 11(g)(iv):
- 5(c)(ii)(A) if “Interest Transfer” applies the Interest Payer (VM) must transfer an Interest Payment (VM) to the Interest Payee (VM), as required under Paragraph 11(g)(ii) and on any Early Termination Date provided that if “Interest Payment Netting” applies:
- (I) if the Interest Payer (VM) is due a payment under the VM CSA on the same date:
- (a) it will be reduced by the Interest Payment (VM) (but not below zero), provided that for a Return Amount (VM), the deduction will only apply to the extent of any Base Currency cash portion of the Credit Support Balance (VM); and
- (b) after any such reduction the Interest Payer (VM) must transfer the remaining Interest Payment (VM) to the Interest Payee (VM);
- (II) following such a reduction, when working out the Credit Support Balance (VM), the Transferee will be deemed to have received or transferred the Base Currency cash equivalent of the reduced amount, on the due date for the Interest Payment (VM); and
- 5(c)(ii)(B) if “Interest Adjustment” applies the Credit Support Balance (VM) will be adjusted by the Transferee, as required under Paragraph 11(g)(ii) and on any Early Termination Date, as follows:
- (I) if the Interest Amount (VM) is positive, it will be added in the Base Currency to the Credit Support Balance (VM); and
- (II) if the Interest Amount (VM) is negative, its absolute value in the Base Currency will be deducted from the Credit Support Balance (VM), provided that if the Base Currency cash portion of the Credit Support Balance (VM) is less than that absolute value, the reduction will be limited to that Base Currency cash and the Transferor must transfer the remainder to the Transferee on the due date.
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2016 VM CSA full text of Section 5(c)(ii):
- 5(c)(ii) Interest Payment (VM). Unless otherwise specified in Paragraph 11(g)(iv):
- 5(c)(ii)(A) if “Interest Transfer” is specified as applicable in Paragraph 11(g)(ii), the Interest Payer (VM) will transfer to the Interest Payee (VM), at the times specified in Paragraph 11(g)(ii) and on any Early Termination Date referred to in Paragraph 6, the relevant Interest Payment (VM), provided that if “Interest Payment Netting” is specified as applicable in Paragraph 11(g)(ii):
- (I) if the Interest Payer (VM) is entitled to demand a Delivery Amount (VM) or Return Amount (VM) in respect of the date such Interest Payment (VM) is required to be transferred:
- (a) such Delivery Amount (VM) or Return Amount (VM) will be reduced (but not below zero) by the Interest Payment (VM), provided that, in case of such Return Amount (VM), if the amount in the Credit Support Balance (VM) which is comprised of cash in the Base Currency is less than such Interest Payment (VM), such reduction will only be to the extent of the amount of such cash comprised in the Credit Support Balance (VM) (the “Eligible Return Amount (VM)”); and
- (b) the Interest Payer (VM) will transfer to the Interest Payee (VM) the amount of the excess, if any, of such Interest Payment (VM) over such Delivery Amount (VM) or Eligible Return Amount (VM), as applicable;
- (II) if under Paragraph 5(c)(ii)(A)(I)(a) a Delivery Amount (VM) is reduced (the amount of such reduction, the “Delivery Amount Reduction (VM)”) or a Return Amount (VM) is reduced (the amount of such reduction, the “Return Amount Reduction (VM)”), then for purposes of calculating the Credit Support Balance (VM) only, the Transferee will be deemed to have received an amount in cash in the Base Currency equal to any Delivery Amount Reduction (VM) and will be deemed to have transferred an amount in cash in the Base Currency equal to any Return Amount Reduction (VM), as applicable, in each case on the day on which the relevant Interest Payment (VM) was due to be transferred; and
- 5(c)(ii)(B) if “Interest Adjustment” is specified as applicable in Paragraph 11(g)(ii), the Credit Support Balance (VM) will be adjusted by the Transferee, at the times specified in Paragraph 11(g)(ii) and on any Early Termination Date referred to in Paragraph 6 as follows:
- (I) if the Interest Amount (VM) for an Interest Period is a positive number, the Interest Amount (VM) will constitute an addition of an amount of cash in the Base Currency comprised in the Credit Support Balance (VM); and
- (II) if the Interest Amount (VM) for an Interest Period is a negative number, the Interest Amount (VM) will constitute a reduction to the amount of cash in the Base Currency comprised in the Credit Support Balance (VM) in an amount (such amount, the “Interest Adjustment Reduction Amount (VM)”) equal to the absolute value of the Interest Amount (VM); provided that if the amount in the Credit Support Balance (VM) which is comprised of cash in the Base Currency is less than the Interest Adjustment Reduction Amount (VM), such reduction will only be to the extent of the amount of such cash comprised in the Credit Support Balance (VM) and the Transferor will be obliged to transfer the remainder of the Interest Adjustment Reduction Amount (VM) to the Transferee on the day that such reduction occurred.
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Related Agreements
Click here for the text of Section 5(c)(ii) in the 1995 English Law CSA
Click here for the text of Section 5(c)(ii) in the 2016 English Law VM CSA
Click [[{{{3}}} - NY VM CSA Provision|here]] for the text of the equivalent, Section [[{{{3}}} - NY VM CSA Provision|{{{3}}}]] in the 2016 NY Law VM CSA
Comparisons
1995 CSA and 2016 VM CSA: click for comparison
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An excruciating torture session for innocent and well-loved members of her majesty’s vocabulary, and all to get across a simple point. I have tried to simplify the drafting but I am a bit jet-lagged and it is testing even my patience. But look: if you are due interest on a Credit Support Balance (VM) it gets added to it. Interest Payment Netting looks like more trouble that, in honesty, it is worth.