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| {{isdaanat|5(b)(vi)}} | | {{nman|isda|2002|Additional Termination Event}} |
| {{ISDAnumberingdiscrepancy}}
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| Any other termination event your Credit department might have dreamt up that didn’t occur to the framers of the {{isdama}} — or, at any rate, wasn’t sufficiently universal to warrant being included in the master agreement for all. Common ones include:
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| *[[NAV trigger|NAV triggers]] (for [[Hedge fund|hedge funds]])
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| *[[Key man]] provisions (for [[Hedge fund|hedge funds]])
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| *[[Investment manager]] insolvency or loss of licence
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| *Parent divestment (where counterparty is a financing subsidiary)
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| The ATEs are likely to be the most haggled-over part of your {{isdama}}.
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| There is a school of thought that this serves the interests of the [[Negotiator|Ancient Guild of Contract Negotiators]] and the [[Credit officer|Worshipful Company of Credit Officers]] more than it does the shareholders of the institutions for whom these people ply their trade, for in these days of [[Threshold - CSA Provision|zero-threshold]] [[CSA|CSAs]], the real credit protections in the ISDA are the standard {{isdaprov|Events of Default}} (especially {{isdaprov|Failure to Pay or Deliver}} and {{isdaprov|Bankruptcy}}),
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| ==={{t|Trick for young players}}===
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| {{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}}”.
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| '''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.
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| 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.
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| 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?
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| {{ref}}
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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
Additional Termination Event in a Nutshell™
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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.
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Original text
Resources and Navigation
Index: Click ᐅ to expand:
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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
Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics👇
- JC’s “nutshell” summary of the clause
- Background reading and long-form essays
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- 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
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See also
References