Delayed settlement compensation

A sum paid from the seller to the buyer of a loan that has traded in the secondary market under par documentation. The payment is due if the settlement of the trade is delayed beyond the seven-day settlement period regarded as standard. The payment is equal to the margin over Libor on the loan for each day settlement is delayed. Since settlement is routinely longer than T+7, delayed settlement compensation payments are common in the secondary loan market. The purpose of delayed compensation is not to penalise the seller but to transfer to the buyer the amount that it would have received had the settlement taken place on schedule.