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| ==Guarantees under the {{isdama}} and why a Transaction-Specific guarantee is a bad idea== | | ==Components of a guarantee== |
| Should a client request a transaction-specific parental guarantee under an {{isdama}} instead of the usual “all obligations” guarantee of all obligations under the {{isdama}} and all transactions under it, escalate immediately.
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| We should *never* agree to the guarantee of individual {{isdaprov|Transaction}}s (or accepting [[letter of credit|Letters of Credit]] with respect to individual transactions) under an {{isdama}}. The reason relates to the way {{isdama}}s are closed out inder Section {{isdaprov|6(e)}}:
| | ===See Also=== |
| | | *{{isdaprov|Credit Support Document}} |
| {{box|{{isdaq|6(e)(i)|2002}}}}
| | *[[Guarantees of the ISDA]] |
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| *On a close-out, each {{isdaprov|Transaction}} is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and the single Early Termination Payment is payable under {{isdaprov|6(e)}} ({{isdaprov|Payments on Early Termination}}) of the {{isdama}}.
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| *That is to say, it is *not* payable under the {{isdaprov|Transaction}} at all - it's payable under the {{isdama}} itself.
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| *Therefore, if the guarantee relates to the single {{isdaprov|Transaction}} only, at precisely the point you wish to rely on it (i.e., upon the party’s default), it will vanish. Same goes for Letters of Credit.
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| {{isdaanatomy}}
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Revision as of 09:31, 23 December 2015
Components of a guarantee
See Also