Common use of Credit Enhancement Fees Clause in Contracts

Credit Enhancement Fees. Certain products offered under the Program provide for performance-based Credit Enhancement Fees. Because the Participation Interests in a Master Commitment are subject to change until the Master Commitment is filled or expires and thereafter, different Designated Delivery Commitments may experience different prepayment rates, then it is possible that the Lead Bank or the Participant Bank might incur Realized Losses which may be recovered by the reduction of future Credit Enhancement Fees in a different proportion than the parties subsequent obligations to pay Credit Enhancement Fees to the PFI. In such an event, any excess Credit Enhancement Fee shall be allocated among the Lead Bank and the Participant Bank to offset previously incurred Realized Losses rather than be paid to the PFI. For example, if only the Lead Bank incurred $10,000 of Realized Losses in the prior month with respect to a Master Commitment, and in the current month the Credit Enhancement Fee otherwise payable to the PFI would be $12,000 of which $9,000 is attributable to the Lead Bank’s interest in the Master Commitment and $3,000 is attributable to the new Participation Interest of the Participant Bank, the Participant Bank shall pay the PFI a $2,000 Credit Enhancement Fee and the Lead Bank the balance of $ 1,000. The administration of Credit Enhancement Fees under the Agreement is illustrated in Exhibit C to this Agreement.