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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 LIBOR. Typically, the clause is drafted to either refer to LIBOR (used here) or the Eurodollar Rate, depending on which term the drafter prefers. It will be invoked if either:
- The administrative agent (agent) determines that it cannot establish LIBOR for the relevant interest period; or
- The agent is advised that a given percentage of lenders (typically required lenders) has determined that LIBOR does not adequately and fairly reflect the cost to the lenders of funding LIBOR loans.
Once the determination is made, the agent generally gives notice to the borrower that the obligations of the lenders to make new LIBOR loans or to rollover existing LIBOR 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 Until the notice is withdrawn by the agent, any loan advances or loan rollovers will typically be base rate loans.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.