Interest Rate Loan Agreements

Gepostet von am Sep 24, 2021 in Allgemein | Keine Kommentare

In a world where official interest rate policy was close to zero in response to the COVID-19 pandemic, discussions intensified about the effectiveness of negative interest rates.1 Indeed, on March 25, 2020, daily U.S. Treasury bond notes were briefly traded in a negative range, 2 and the Secured Coverage Ratio (SOFR) has been close to zero (but not yet negative) since March 19. 20203. Recent reports4 indicate that the bond market appears to be recording negative interest rates during 2020. The assumption implicit in this debate is that negative interest rates will be an effective incentive (i.e. paying someone to borrow effectively reduces the opportunity cost of cash and creates economic incentives to invest). It is therefore clear that the parties were free to determine what would happen in the event of negative interest rates. Why they didn`t do it was between them, but one answer might be that they wanted simplicity. The court held that if there was an obligation on the CSA regarding negative interest rates, it would be the subject of a call for tenders.

The variable rate loan is linked to a specific benchmark rate or benchmark such as the London Interbank Offered Rate (LIBOR). LIBOR is the rate at which banks lend each other money. The interest rate is determined by interviewing banks and obtaining information about the interest rates they pay when borrowing from institutions by peers. The State acknowledged that paragraph 5(c)(ii) of the CSA was only pre-execrable, that the State could pay interest to the bank and not the other way around. However, it argued that negative interest rates should be taken into account in the calculation of the credit aid balance. OCC finalizes changes in corporate activity rules The Federal Court did not prefer one doctrine over another. On the contrary, the loan agreement at issue does not contain an explicit clause in the event that the six-month LIBOR-CHF rate becomes negative and does not explicitly guarantee an interest rate of 0.0375% in favour of the lender. In addition, the loan agreement does not explicitly contain a clause providing for the possibility of lifting the obligation to pay interest. Several clauses of the loan agreement explicitly referred to the obligation to pay interest imposed by the borrower.

Moreover, it is not clear that the parties expected negative interest rates when the loan agreement was concluded in 2006 and that they did not envisage that the borrower could refinance itself with negative interest. It is therefore not possible to deduce from an objective interpretation of the loan agreement that the borrower would receive negative interest in good faith. In the absence of an action by the defendant, the Court had only to decide whether negative interest was due and could therefore leave open the question whether the lender would in any event receive the margin of 0.0375% (first doctrine) or whether that margin would fall to 0% because of the negative base rate (second doctrine). Despite the lack of certainty, a court may decide that a lender should be able to calculate a higher interest rate than the contractual interest rate (on the basis of a contractual rate that would deduct the negative Libor from the spread), based on an implicit floor of zero in such credit agreements; Lenders never intended to calculate an interest rate below the spread….