Advice to Corporate Borrowers on Implementation of Market Disruption Loan Agreement Clauses

28 September 2008

In response to recent reports that some banks are considering invoking the Market Disruption clause commonly found in loan agreements, the Association of Corporate Treasurers (ACT) believes that this should be a last resort and implemented only after certain other steps are taken.

The ACT would only expect the Market Disruption clause to be invoked if banks generally are experiencing exceptional difficulty in raising funds in the interbank market or are paying materially more for interbank deposits than the displayed screen rates for LIBOR or EURIBOR. In these circumstances the clause enables banks to increase the rates charged to borrowers so that they reflect the actual cost of funds to banks.