Additional Termination Event - ISDA Provision: Difference between revisions

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{{fullanat2|isda|5(b)(vi)|2002|5(b)(v)|1992}}
{{nman|isda|2002|Additional Termination Event}}
{{ISDAnumberingdiscrepancy}}
==={{t|Trick for young players}}===
{{isdaprov|Termination Event}} is defined as “an {{isdaprov|Illegality}}, a {{isdaprov|Tax Event}} or a {{isdaprov|Tax Event Upon Merger}} or, if specified to be applicable, a {{isdaprov|Credit Event Upon Merger}} or an {{isdaprov|Additional Termination Event}}”.
 
'''Best Practice Note''': Therefore adding any new {{isdaprov|Termination Event}} must ALWAYS be achieved by labelling it a new {{isdaprov|Additional Termination Event}} under Section {{isdaprov|5(b)(vi)}}<ref>Or {{isdaprov|5(b)(v)}} under the {{1992ma}}</ref>, and not a separate event under a new Section {{isdaprov|5(b)(vii)}}<ref>Or a nonexistent {{isdaprov|5(b)(vi)}}, if under the {{1992ma}}</ref> etc.
If, you try to make it into a new “{{isdaprov|5(b)(vii)}}” it is therefore ''neither'' an “{{isdaprov|Illegality}}”, “{{isdaprov|Tax Event}}”, “{{isdaprov|Tax Event Upon Merger}}”, “{{isdaprov|Credit Event Upon Merger}}” ''nor'' an “{{isdaprov|Additional Termination Event}}”. Read literally, is will not be caught by the definition of “{{isdaprov|Termination Event}}” and none of the Termination provisions will bite on it.
 
I mention this because I have seen it happen. Yes, you can take a “fair, large and liberal view” that what the parties intended was to create an {{isdaprov|ATE}}, but why suffer that anxiety?
{{ref}}

Latest revision as of 16:55, 14 August 2024

2002 ISDA Master Agreement

A Jolly Contrarian owner’s manual™

Additional Termination Event in a Nutshell

The JC’s Nutshell summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here.

Original text

5(b)(vi) Additional Termination Event. If any “Additional Termination Event” is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties will be as specified for such Additional Termination Event in the Schedule or such Confirmation).
See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA.
The Varieties of ISDA Experience
Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext)
Preamble Pre Pre Pre
Interpretation 1 1 1
Obligns/Payment 2 2 2
Representations 3 3 3
Agreements 4 4 4
EODs & Term Events 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityFMTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSSCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUM
Early Termination 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculations; Payment DatePayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ET
Transfer 7 7 7
Contractual Currency 8 8 8
Miscellaneous 9 9 9
Offices; Multibranch Parties 10 10 10
Expenses 11 11 11
Notices 12 12 12
Governing Law 13 13 13
Definitions 14 14 14
Schedule Schedule Schedule Schedule
Termination Provisions Part 1 Part 1 Part 1
Tax Representations Part 2 Part 2 Part 2
Documents for Delivery Part 3 Part 3 Part 3
Miscellaneous Part 4 Part 4 Part 4
Other Provisions Part 5 Part 5 Part 5

Resources and Navigation

Index: Click to expand:

Comparisons

Additional Termination Events: Other than the numbering discrepancy and a daring change of a “shall” to a “will”, Section 5(b)(vi) of the 2002 ISDA is the same as Section 5(b)(v) of the 1992 ISDA. That said, ATEs are likely to be the most haggled-over part of your ISDA Master Agreement.

Basics

Additional Termination Events are the other termination events your Credit department has dreamt up for this specific counterparty, that didn’t occur to the framers of the ISDA Master Agreement — or, at any rate, weren’t sufficiently universal to warrant being included in the ISDA Master Agreement for all. While the standard Termination Events tend to be “non-fault” events which justify termination of the relationship on economic grounds, but not on terms necessarily punitive to the Affected Party, Additional Termination Events are more “credit-y”, more susceptible of moral outrage, and as such more closely resemble Events of Default than Termination Events.

Common ones include:

There is a — well, contrarian — school of thought that Additional Termination Events better serve the interests of the Ancient Guild of Contract Negotiators and the Worshipful Company of Credit Officers than they do the shareholders of the institutions for whom these artisans practise their craft, for in these days of zero-threshold CSAs, the real credit protections in the ISDA Master Agreement are the standard Events of Default (especially Failure to Pay or Deliver and Bankruptcy).

It’s a fair bet no-one in the organisation will have kept a record of how often you pulled NAV trigger. It may well be never.

“Ahh”, your credit officer will say, “but it gets the counterparty to the negotiating table”.

Hmmm.

Premium content
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  • JC’s “nutshell” summary of the clause
  • Background reading and long-form essays
    • From our “tricks for young players” series: Why you should not create a Section 5(b)(vii) Termination Event
    • Classic ATE corner: Key person triggers
    • Classic ATE corner: NAV triggers

See also

References