Template:M summ 2002 ISDA Default Rate

Default interest is one of those perennial things in finance and is generally a rate higher than the implied funding rate for the period and person in question. You might well ask — though one might, as the JC does, struggle heroically to not go there — whether an arbitrary loading on what ought to be a fair estimate of one’s actual carrying cost is not an unenforceable penalty, but hey, everyone does it.

The Default Rate appears in two contexts: firstly, in Section 9(h)(i) to deal with the default rate payable after the payment or delivery failure giving rise to an Event of Default, but before an Early Termination Date is finally designated: in theory at any rate, thanks to Section 2(a)(iii) that period could be quite a long time — potentially indefinite, if you haven’t caved in to the need to seem like a reasonable guy and agreed a Condition End Date limitation.

Secondly, in the definition of Applicable Close-out Rate — a veritable beast in itself.