Merger Without Assumption - ISDA Provision: Difference between revisions
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Your correspondent is not one of these people, and has little more to say about mergers, except that what happens to live contracts at the time of such chicanery will depend a lot on just how the companies and their assets are being joined or torn assunder. | Your correspondent is not one of these people, and has little more to say about mergers, except that what happens to live contracts at the time of such chicanery will depend a lot on just how the companies and their assets are being joined or torn assunder. | ||
If the {{isdama}} and its extant {{isdaprov|Transactions}} carry across — which in a plain [[merger]], they ought to — all well and good <ref>Though watch out for traps: what if ''both'' merging companies have {{isda}}s with the same counterparty, but on markedly different terms? Which prevails? Do they both? Which one do you use for new {{isdaprov|Transaction}}s? This you will have to hammer out across the negotiating table.</ref> | If the {{isdama}} and its extant {{isdaprov|Transactions}} carry across — which in a plain [[merger]], they ought to — all well and good.<ref>Though watch out for traps: what if ''both'' merging companies have {{isda}}s with the same counterparty, but on markedly different terms? Which prevails? Do they both? Which one do you use for new {{isdaprov|Transaction}}s? This you will have to hammer out across the negotiating table.</ref> | ||
But in some cases the Transactions might not carry across. Perhaps the resulting entity has no [[Ultra vires|power]] to transact swaps. Perhaps it is in a jurisdiction in which that cannot be enforced. Perhaps it just refuses to honour them. {{isdaprov|Merger Without Assumption}} addresses that contingency. | But in some cases the Transactions might not carry across. Perhaps the resulting entity has no [[Ultra vires|power]] to transact swaps. Perhaps it is in a jurisdiction in which that cannot be enforced. Perhaps it just refuses to honour them. {{isdaprov|Merger Without Assumption}} addresses that contingency. | ||
Revision as of 11:56, 30 October 2019
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ISDA Anatomy™
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When a firm merges into, or is taken over by, another, some magical — or unexpected — things can happen. Not for nothing does the ISDA Master Agreement labour over the very description: that this might be a “consolidation, amalgamation, merger, transfer, reorganisation, reincorporation or reconstitution” — prolix even by ISDA’s lofty standards — should tell you something. Generations of corporate lawyers have forged whole careers — some never leaving the confines of their law practices for forty or more years — out of the manifold ways one can put companies together and take them apart again.
Your correspondent is not one of these people, and has little more to say about mergers, except that what happens to live contracts at the time of such chicanery will depend a lot on just how the companies and their assets are being joined or torn assunder.
If the ISDA Master Agreement and its extant Transactions carry across — which in a plain merger, they ought to — all well and good.[1]
But in some cases the Transactions might not carry across. Perhaps the resulting entity has no power to transact swaps. Perhaps it is in a jurisdiction in which that cannot be enforced. Perhaps it just refuses to honour them. Merger Without Assumption addresses that contingency. This is the clause that would have been covered Section 5(a(ii)(2) repudiation, had the resulting entity accepted the contract at all in the first place. It can be triggered if the resulting party repudiates any outstanding Transactions under the ISDA Master Agreement (or otherwise they are not binding on it); or any Credit Support Document stops working as a result of the merger.
And “all or substantially all” means?
There's not a lot of case law on it. Some say 90%. Some say 75%. Some people — your correspondent included — say “shoot me”. but interestingly the Section doesn’t seem to bite where one entity transferred all of its assets, half-half, into two distinct entities. I dunno — could it happen? Search me. You’ll have to go and find one of those corporate lawyers I was talking about before to find that out. They love that kind of stuff.
See also
References
- ↑ Though watch out for traps: what if both merging companies have ISDAs with the same counterparty, but on markedly different terms? Which prevails? Do they both? Which one do you use for new Transactions? This you will have to hammer out across the negotiating table.