Alternate Base Rate
Alternate Base Rate is a defined term in many loan agreements, particularly in US practice.
The definition varies between loan agreements but common features are many.
It sets out how, under specified circumstances, to determine the reference rate to which a margin will be added to give the rate of interest payable on an advance.
Typically the definition sets out several choices of rate. Lenders may seek to make the rate the highest of the alternative bases.
Borrowers should ensure they fully understand how the Alternate Base Rate will be determined, and the consequences in interest cost.
Models may include among the choices:
- The lender's published "prime rate" (see also US prime rate) or generally applicable "base rate", or the average of such rates in a syndicated loan.
- The appropriate central bank's Base Rate or equivalent or its discount rate, plus some agreed additional margin.
- The effective federal funds Rate (see Fed funds and EFFR).
The range is limited only by the imagination and agreement of the parties.
The ABR is sometimes known as the Alternative Base Rate.