Termination event

ISDA Anatomy™ →Go uptown 5(b) in a Nutshell™ (2002 ISDA edition) 5(b) Termination Events The events below occur to a party or its Credit Support Provider or Specified Entity (subject to Section 5(c)) it will be an Illegality (5(b)(i)); a Force Majeure Event (5(b)(ii)), a Tax Event (5(b)(iii)), a Tax Event Upon Merger (5(b)(iv)) and Credit Event Upon Merger (5(b)(v)): 5(b)(i) Illegality. Taking account of any fallbacks and remedies in the Transaction, for reasons beyond the Affected Party’s control, (not counting a lack of authorisation required under Section 4(b)), it would be illegal in any relevant jurisdiction to comply with any material term of a Transaction or Credit Support Document. 5(b)(ii) Force Majeure Event. A force majeure occurring after any Transaction is executed means:― (1) the Affected Party’s relevant Office cannot practicably perform any obligation under the Transaction; or (2) the Affected Party or its Credit Support Provider cannot practicably perform any obligation under the Transaction; if the force majeure is outside the Affected Party’s control and it could not, using all reasonable efforts (without incurring more than incidental expenses by way of loss), overcome the necessary prevention; 5(b)(iii) Tax Event It will be a Termination Event when, following a change in tax law or practice after any trade date, an Affected Party is likely to have to either: (1) Gross up an Indemnifiable Tax deduction (other than for interest under Section 9(h)); or (2) receive a payment net of Tax which the Non-Affected Party is not required to gross up (other than where it is caused by the Non-Affected Party’s own omission or breach). 5(b)(iv) Tax Event Upon Merger. A party (the “Burdened Party”) on the next Scheduled Settlement Date will have to: (1) Gross up an Indemnifiable Tax deduction (other than for interest under Section 9(h)); or (2) receive payments net of Tax which are not required to be grossed up (other than where that is caused by the Non-Affected Party’s own omission or breach); because a party has merged with, transferred substantially all of its assets into, or reorganised itself as, another entity (the Affected Party) where that does not amount to a Merger Without Assumption; 5(b)(v) Credit Event Upon Merger. If “Credit Event Upon Merger” applies and it or any of its Credit Support Providers or Specified Entities suffers a Designated Event (which is not a Merger Without Assumption) and the relevant entity’s (which will be the Affected Party) creditworthiness is materially weaker as a result. A “Designated Event” means that the relevant entity:― (1) merges with, or transfers substantially all of its assets into, or reorganises itself as another entity; (2) comes under the effective voting control of another entity; or (3) makes a substantial change in its capital structure by issuing or guaranteeing debt, equities or analogous interests, or securities convertible into them; 5(b)(vi) Additional Termination Event. If any “Additional Termination Event” is specified, the occurrence of that event (where the Affected Party will be as specified in the Confirmation or Schedule). view template Index: Click ᐅ to expand: ISDA Navigation See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA. The Varieties of ISDA Experience Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext) Preamble Pre Pre Pre Interpretation 1 1 1 Obligns/Payment 2 2 2 Representations 3 3 3 Agreements 4 4 4 EODs & Term Events 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • FM • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUST • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM • ATE 5 Events of Default: FTPD • Breach • CSD • Misrep • DUSS • Cross Default • Bankruptcy • MWA Termination Events: Illegality • Tax Event • TEUM • CEUM Early Termination 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations; Payment Date • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET • Set-off 6 Early Termination: ET right on EOD • ET right on TE • Effect of Designation • Calculations • Payments on ET Transfer 7 7 7 Contractual Currency 8 8 8 Miscellaneous 9 9 9 Offices; Multibranch Parties 10 10 10 Expenses 11 11 11 Notices 12 12 12 Governing Law 13 13 13 Definitions 14 14 14 Schedule Schedule Schedule Schedule Termination Provisions Part 1 Part 1 Part 1 Tax Representations Part 2 Part 2 Part 2 Documents for Delivery Part 3 Part 3 Part 3 Miscellaneous Part 4 Part 4 Part 4 Other Provisions Part 5 Part 5 Part 5 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.

See: Early Termination Events under the ISDA Master Agreement.

A termination event is a softer, gentler kind of event of default.

Popularised by those habitual splitters of hairs, ISDA lawyers, Early Termination Events are circumstances giving grounds to terminate an ISDA Master Agreement that do not speak to the moral character or unacceptable creditworthiness of the Affected Party (so labelled, as opposed to a Defaulting Party.

So an Illegality, a Force Majeure, a Tax Event, a Tax Event Upon Merger or a Credit Event Upon Merger — all these things speak to the motion of vengeful gods above our mortal heads; seismic changes beyond our gift or capacity to control, and for whose provenance we can’t be roundly blamed.

There again, Additional Termination Events — that category of other stuff thrown in for good measure by the Credit Department, and which will foul up your negotiation for months — these are more turpitudinous and defaulty.

In most master trading agreements this kind of dancing on a pinhead is of little moment and is scarcely to be encouraged (but let a creative credit officer loose on it, and you’ll be amazed what she can come up with), but the term, volatility and net exposure one can generate under an ISDA Master Agreement make them a little special.

And we all like to feel a little special some times, don’t we?