ACIC Releases Model Provision for Swap Breakage


On April 18, the American College of Investment Counsel (the “ACIC”) released a final version of its Model Form Make-Whole and Swap Breakage Indemnity Language (the “Model Provision”),[1] as well as a substantially similar Swap Indemnity Letter Form (the “Letter Form”).[2] These final versions of the Model Provision and the Letter Form revise the initial drafts, released for comment on May 20, 2018, which were prepared to replace the existing 2007 versions. The purpose of both the Model Provision and the Letter Form is to place noteholders purchasing non-U.S. dollar denominated notes and entering into a cash-flow hedge with a swap counterparty in a similar economic position as if they had purchased a U.S. dollar denominated note.[3]

The Model Provision functions as “drop-in” language to a note purchase agreement in a private placement transaction where the noteholders will be entering into forward starting cross-currency swaps to fund the transaction. Under the Model Provision, if a swapped note is prepaid or is immediately due and payable, then any swap breakage loss must be reimbursed by the issuer to the noteholder within five business days after the delivery of notice relating to that event. Conversely, a swap breakage gain must be paid by the noteholder to the issuer within five business days after the noteholder has received payment in full of the principal, interest and a “make-whole amount.”[4]

The Letter Form functions in a similar manner, although, unlike the Model Provision, the Letter Form and the obligations thereunder remain in place even without an executed note purchase agreement. If a noteholder enters into a forward starting cross-currency swap to fund a transaction, the Letter Form provides for an indemnity if certain events occur between the date of the letter and the anticipated closing date, including (i) if there are material changes to the payment terms between the date of the letter and the closing date or (ii) if the transaction does not close on its anticipated closing date, either (x) as a result of an initial purchaser being unwilling or unable to close, despite satisfying all conditions precedent, or (y) where an initial purchaser fails to satisfy a condition precedent due to willful misconduct, bad faith or breach of the terms of the note purchase agreement. More specifically, upon the occurrence of these events, the issuer agrees to indemnify noteholders for any net loss (plus related attorneys’ fees) in connection with the unwind of a swap. Similarly, the noteholders agree to pay any net gain under the same circumstances (less any related out-of-pocket costs) to the issuer.

[1] American College of Investment Counsel, Transaction Process Management Committee, Form Make-Whole and Swap Indemnity Language (2019),

[2] American College of Investment Counsel, Transaction Process Management Committee, Swap Indemnity Letter Form (2019),

[3] Under such a hedge, the noteholder generally pays to the swap counterparty the principal and interest it expects to receive from the issuer of the non-USD denominated note and receives from the swap counterparty the U.S. dollar equivalent of those amounts, calculated based on market rates at the time the hedge is executed.

[4] The make-whole amount is calculated by, generally, subtracting the present value of the remaining scheduled swap payments from the amount due on the related swapped note, which functionally places the noteholder in the same position as if it had purchased a USD denominated note.