Template:M summ 2002 ISDA 9(h)

Section 9(h) deals with the various scenarios where interest — over and above stated Fixed Rate and Floating Rate Options might apply to legs of a Transaction — might apply to deferred and delayed payments under the ISDA. Those scenarios are:

Payment default: Someone defaults on a money payment.
Delivery default: Someone defaults on an asset delivery.
Non-default deferral: Some other externality intervenes to make payment impossible, which does not amount to a default: a market disruption, a Force Majeure Event, a forced suspension of obligations for reasons beyond the control or fault of either party.

In that magically over-complicated way that is the blast signature of ISDA’s crack drafting squad™, the rate that applies to interest differs depending on the reason for it. The more “at fault” a party is, the more punitive the rate: the rates for innocent deferrals are called Applicable Deferral Rates; the more punitive ones Default Rates. (This by the way is one of the significant “upgrades” from the 1992 ISDA, which had a rather half-hearted penalty interest provision in Section 2(e)).

Also the calculation basis is more complicated if the deferral involves the delivery of an asset, since you need a way of figuring out the market value of the asset on which interest can be said to accrue.

And since one kind of deferral can morph into another — upon the expiry of a Waiting Period, for example — the exact computation of deferrals is fraught. You might even think that the ’squad’s quest for infinite exactitude in a scenario which in many cases will include a bankrupt debtor who isn’t going to pay you much of what you are owed in any case, is a bit overdone. We couldn’t possibly comment.