Applicable Deferral Rate - ISDA Provision
2002 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Applicable Deferral Rate in all its glory
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Overview
This is all in the service of calculating interest at close out on payments that have been somehow deferred (under the Section 2(a)(iii) “flawed asset” provision, or because of Illegality or Force Majeure). It is, we think, an inordinate amount of verbal engineering to answer an uncontroversial question (viz., “what’s a fair interest rate to charge?”) in a deeply remote contingency.
ISDA’s crack drafting squad™. Never knowingly unfussed™.
Summary
If you want to find out the Applicable Close-out Rate, chances are you will bump into one of these deferred payments rates. You might think, and we might agree with you, that ISDA’s crack drafting squad™ was over-thinking a remote contingency for recovering more money from a counterparty that probably doesn’t have the money to pay it in the first place. Okay, okay, it might do upon a Force Majeure Event or an Illegality. But not a 2(a)(iii) suspension.
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- The JC’s famous Nutshell™ summary of this clause
- Analysis of the three different Applicable Deferral Rates, and why the JC thinks you (and ISDA’s crack drafting squad™) would have been much better just sticking with a published base rate and not bothering with all this fusspot engineering.