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, prior to Early Termination under Section 9(h)(i), to deal with rate payable after a payment or delivery failure giving rise to an Event of Default — also if there is a deferral brought about as a result of a Force Majeure or Illegality), but before the Non-defaulting Party has designated an Early Termination Date: 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.