Cap Agreement and Cap Collateral Assignment Clause Samples
The Cap Agreement and Cap Collateral Assignment clause establishes the terms under which a party assigns its rights and interests in a cap agreement, along with any associated collateral, to another party—typically as security for obligations under a broader contract. In practice, this means that if a borrower has entered into an interest rate cap to limit exposure to rising rates, the lender may require the borrower to assign both the cap agreement and any collateral supporting it as additional security. This clause ensures that the lender can access the benefits of the cap agreement and its collateral if the borrower defaults, thereby reducing the lender’s risk and providing a clear mechanism for securing performance.
Cap Agreement and Cap Collateral Assignment. Reserved.
Cap Agreement and Cap Collateral Assignment. (a) Cap Agreement. To protect against fluctuations in interest rates, Borrower must obtain and maintain a Cap Agreement at all times so long as the Loan is outstanding. The Cap Agreement must be successfully bid no later than the Closing Date and be effective for an initial term ending not earlier than the third anniversary of the Closing Date. The initial Cap Agreement must be in a Notional Amount equal to the principal amount of the Loan on the Closing Date and have a Strike Rate that does not exceed the Original Strike Rate. The Cap Agreement, including any Replacement Cap Agreement, must obligate the Cap Provider to make monthly payments directly to Lender or to Loan Servicer on behalf of Lender in an amount equal to the excess of (i) the interest on the Notional Amount at the Index Rate over (ii) interest on the Notional Amount at the Strike Rate.
(b) Replacement Cap Agreement. At least 60 days prior to the date on which an existing Cap Agreement terminates, Borrower must give Notice to and provide evidence satisfactory to Lender that Borrower will deliver a Replacement Cap Agreement. Borrower must ensure that the Replacement Cap Agreement is in full force and effect not later than the day immediately following the expiration of the then-existing Cap Agreement. Any Replacement Cap Agreement must (i) have a term not earlier than one year from its effective date, (ii) have a Strike Rate that does not exceed the Original Strike Rate, and (iii) be in a Notional Amount equal to the outstanding Indebtedness on the effective date of the Replacement Cap Agreement.