In the case of interest rate risk hedging, the ISDA agreement is published by the International Swaps and Derivatives Association and an organization responsible, among other things, for determining the terms of a derivative transaction (also known as an interest rate swap) between two parties, usually a bank and a borrower. ISDA was created to demystify the derivatives market and thus enable further growth. The ISDA agreement consists of two parts: a master contract and a timetable: as soon as the loan is fully repaid, all rights, securities and interest of the lender will end at the interest rate cap agreement, and the lender will immediately execute and provide the borrower`s only fees and costs, the documents that may be necessary to prove the release of the interest rate ceiling contract by the lenders and inform the counterparty of this notification. (c) the borrower will meet all of its obligations under the terms and conditions of the interest rate cap agreement. The main problem for borrowers facing the signing of an ISDA is this: in the vast majority of cases, the ISDA calendar is heavily weighted in favour of the bank and there are no legal conditions for competition between the bank and the borrower. What for? Banks believe that most isda schedules are not negotiated by the borrower and therefore use a typical “Fill-in-the-blank” form when writing. It`s true. The bank chain documentation function almost ensures that you have a legal disadvantage when entering into an interest rate swap. Worse still, most borrowers` lawyers have no idea what ISDA is, or the business points that benefit borrowers. 3. Beware of default cross-thresholds: ISDA`s cross-default commission allows the bank to terminate all current swaps covered by ISDA when the borrower defaults. If you do not negotiate a threshold to act as a buffer against unnecessary swap termination due to your technical but non-material delay, your interest rate protection may evaporate unnecessarily.
At least the ISDA default thresholds should be those of the underlying loan agreement. All this leads to a scenario in which what you have worked so hard to negotiate in the loan contract is not reflected in the ISDA calendar, which gives you a false sense of legal certainty. We wanted to put an end to this brief discussion on ISDA by pointing out that the ISDA calendar contains a very important non-reliance clause. It states that you act as an interest rate hedge, that you have made your own independent decision, that you know what you are doing and that you cannot blame the bank for unintended consequences. It also means that even if the bank recommends a specific backup product through another (. B for example, an interest rate pass in relation to a swap), it is not obliged to advise you in a professional sense (i.e. to provide complete and impartial information).