Events of Default (Early Termination Payments) - ISDA Provision: Difference between revisions
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==Commentary== | ==Commentary== | ||
Note the effect of this is that all transactions are terminated and the recourse is to a net sum under Section {{isdaprov|6(e)}} of the {{isdama}} - NOT under the {{isdaprov|Transactions}}. Therefore, if your [[credit support]] (particularly [[guarantee]]s or [[LC|letters of credit]]) explicitly references the {{isdaprov|Transaction}}, you may lose any credit support at precisely the point you want to rely on it. Further commentary on the [[Guarantee]] page. | Note the effect of this is that all transactions are terminated and the recourse is to a net sum under Section {{isdaprov|6(e)}} of the {{isdama}} - NOT under the {{isdaprov|Transactions}}. Therefore, if your [[credit support]] (particularly [[guarantee]]s or [[LC|letters of credit]]) explicitly references the {{isdaprov|Transaction}}, you may lose any credit support at precisely the point you want to rely on it. Further commentary on the [[Guarantee]] page. |
Revision as of 16:39, 6 October 2016
In gory detail
1992 ISDA
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6(e)(i) in a Nutshell™ (ISDA edition)
- 6(e)(i) Events of Default. On an Early Termination Date following an Event of Default, the Non-defaulting Party will determine Early Termination Amount in the Termination Currency as the sum of:
- (a) the Close-out Amounts for each Terminated Transaction plus
- (b) Unpaid Amounts due to the Non-defaulting Party; minus
- (c) Unpaid Amounts due to the Defaulting Party.
- (a) the Close-out Amounts for each Terminated Transaction plus
- If the Early Termination Amount is positive, the Defaulting Party will pay it to the Non-defaulting Party. If negative, the Non-defaulting Party will pay its absolute value to the Defaulting Party.
Commentary
Note the effect of this is that all transactions are terminated and the recourse is to a net sum under Section 6(e) of the ISDA Master Agreement - NOT under the Transactions. Therefore, if your credit support (particularly guarantees or letters of credit) explicitly references the Transaction, you may lose any credit support at precisely the point you want to rely on it. Further commentary on the Guarantee page.