Template:M summ 2002 ISDA Applicable Close-out Rate

Truly from the I’m sorry I asked file — almost in the shoot me file. You can sense the pragmatists in ISDA’s crack drafting squad™ — if there are any — had well and truly tuned out by the time they got to this definition.

You have the Default Rate, the Non-default Rate, the Applicable Deferral Rate, and the Termination Rate. Depending on how and why you have closed out the 2002 ISDA, and whether you were at fault, a different rate will apply.

The four rates are:

• “Default Rate” means the payee’s self-certified cost of funding plus 1% per annum.
  
• “Non-default Rate” means a rate obtained in good faith by the Non-defaulting Party from a major bank in the interbank market for overnight deposits to reasonably reflect prevailing market conditions.
  
• “Applicable Deferral Rate” means:—

(a) For Section 9(h)(i)(3)(A) [payments deferred under Section 2(a)(iii)], the market rate actually offered by a major bank in the interbank market for overnight deposits in that currency that the payer chose in good faith;

(b) For Section 9(h)(i)(3)(B) [payments deferred during a Waiting Period because of an Illegality or Force Majeure] and clause (a)(iii) of Applicable Close-out Rate, the market rate actually offered by a major bank in the interbank market for overnight deposits in that currency that the payer chose in good faith and in consultation with the other party; and

(c) For Section 9(h)(i)(3)(C) [payments not made after a Waiting Period expires while the Illegality or Force Majeure subsists] and clauses (a)(iv), (b)(i)(3) and (b)(ii)(l) of Applicable Close-out Rate, the average of the rate the payer obtains under (a) above and the annual rate of the payee’s cost of funding of that amount.

• “Termination Rate” means each party’s self-certified average cost of funding.