Interest Adjustment - CSA Provision

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CSA Anatomy™


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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One might query whether “Daily Interest Compounding” should apply.

Interest compounds anyway at the end of each specified interest period (because it is paid out or added to the Credit Support Balance (VM), depending on which election you made at 11(g)(ii). If that period is “daily” then there's nothing really to be gained by Daily Interest Compounding. If the Interest Period is longer than that, there may be — but in the present environment (which, as those of you who lived through the Weimar Republic[1] may recall, CAN MOST DEFINITELY CHANGE) — the thought of daily compounding 1/365th of the bugger all interest you're getting paid anywaymight seem like a fight it’s not worth dying in a ditch about[2].

See also

References

  1. NONE of you lived through the Weimar Republic, by the way.
  2. Be assured, though - your lawyers will disagree.