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Market Disruption Clause
Practical Law Glossary Item 7-386-0423 (Approx. 2 pages)
Glossary
Market Disruption Clause
A clause in a loan agreement (or other debt document) which determines how interest rates are calculated if there is a disruption to the normal method of calculating the benchmark interest rate. It will be invoked if either:
- The administrative agent (agent) determines that it cannot establish the benchmark interest rate for the relevant interest period; or
- The agent is advised that a given percentage of lenders (typically required lenders) has determined that the benchmark interest rate does not adequately and fairly reflect the cost to the lenders of funding the benchmark interest rate loans.
Once the determination is made, the agent generally gives notice to the borrower that the obligations of the lenders to make new benchmark interest rate loans or to rollover these existing loans is suspended. Until the notice is withdrawn by the agent, any loan advances or loan rollovers will typically be base rate loans.
For links to loan agreement market disruption clauses, see Practice Note, What's Market: Market Disruption Clauses.