Non-defaulting Party - 1992 ISDA Provision

1992 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Resources and navigation Resources Wikitext | Nutshell wikitext | 2002 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA Navigation Preamble | 1 • (a) (b) (c) | 2 • (a) (b) (c) (d) (e) | 3 • (a) (b) (c) (d) (e) (f) | 4 • (a) (b) (c) (d) (e) | 5 • 5(a) Events of Default: 5(a)(i) Failure to Pay or Deliver 5(a)(ii) Breach of Agreement 5(a)(iii) Credit Support Default 5(a)(iv) Misrepresentation 5(a)(v) Default Under Specified Transaction 5(a)(vi) Cross Default 5(a)(vii) Bankruptcy 5(a)(viii) Merger Without Assumption 5(b) Termination Events: 5(b)(i) Illegality 5(b)(ii) Tax Event 5(b)(iii) Tax Event Upon Merger 5(b)(iv) Credit Event Upon Merger 5(b)(v) Additional Termination Event (c) | 6 • (a) (b) (c) (d) (e) | 7 | 8 • (a) (b) (c) (d) | 9 • (a) (b) (c) (d) (e) (f) (g) | 10 | 11 | 12 • (a) (b) | 13 • (a) (b) (c) (d) | 14 | Index: Click ᐅ to expand: 2002 ISDA 1992 ISDA Section 6(a) in a Nutshell™ Use at your own risk, campers! 6(a) Right to Terminate Following Event of Default. If one party (“Defaulting Party”) suffers an Event of Default, the other (the “Non-defaulting Party”) may, by not more than 20 days’ notice, designate an Early Termination Date for all outstanding Transactions. If Automatic Early Termination applies to the Defaulting Party and the Event of Default it is qualifying Bankruptcy event, the Early Termination Date will occur: (i) upon the Bankruptcy event, if under 5(a)(vii)(1), (3), (5) or (6) or if analogous, (8); and (ii) immediately before institution of the relevant proceeding, if under 5(a)(vii)(4) or if analogous, (8). view template Full text of Section 6(a) 6(a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days’ notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, “Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), (Bankruptcy) and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). view template Related agreements and comparisons Related Agreements Click here for the text of Section 6(a) in the 2002 ISDA Comparisons Click to compare this section in the 1992 ISDA and 2002 ISDA. Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Content and comparisons

Redlines

• 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
• 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
• 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)

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Discussion

No change in the Early Termination Date definition from 1992 ISDA to 2002 ISDA (no real surprise there) but the close-out methodology between the two versions, by which one works out what must be paid and by whom on an Early Termination Date, and which you are encouraged to follow in all its gory detail starting at Section 6(a), is really quite different, and notwithstanding the fact that the 2002 ISDA version was meant to address the many and varied complaints levelled by market practitioners at the 1992 ISDA we still find the 1992 version in use in the occasional market centred in unsophisticated rural backwaters like, oooh, I don’t know, New York.

Those with a keen eye will notice that, but for the title, Section 6(a) of the 2002 ISDA is the same as Section 6(a) of the 1992 ISDA and, really, not a million miles away from the svelte form of Section 6(a) in the 1987 ISDA — look on that as the Broadcaster to the 1992’s Telecaster. There is one key difference, though: the evolution of the Automatic Early Termination provision. And the 1987 ISDA saw no call to have a “Non-Defaulting Party”.

It has its own entire page — Automatic Early Termination — so we have refrained from discussing it here.

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See also

• Closing out an ISDA
• Effect of Designation
• Automatic Early Termination

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