Events of Default (Early Termination Payments) - ISDA Provision: Difference between revisions

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{{isdaanat|6(e)(i)}}''See also [[6(e)(i) - 1992 ISDA provision]] for the equivalent provision under the {{1992ma}}''.<br>
{{manual||MI|2002|6(e)(i)|Section|6(e)(i)|medium}}
The effect of this is that in closing out an ISDA, the first step is to terminate all {{isdaprov|transaction}}s to arrive at a {{isdaprov|Close-out Amount}}<ref>The Close-out Amont is basically the replacement cost for the Transaction, and will therefore assume past payments have all been made. Hence the converse concept of “{{isdaprov|Unpaid Amount}}s”, being amounts that should have been paid or delivered under the {{isdaprov|Transaction}} by  termination, but weren’t (hence, we presume, why good sir is closing out the {{isdama}} in the first place). Note that, to avoid the fear of [[double-counting]], the definition of “{{isdaprov|Close-out Amount}}” explicitly ignores the effect of any {{isdaprov|Unpaid Amount}}s under a {{isdaprov|Transaction}}.</ref> for each one, then figure out if there were any {{isdaprov|Unpaid Amount}}s that were due under {{isdaprov|Transaction}}s but had not been paid at the time the {{isdaprov|Transaction}}s terminated. The close out happens under Section {{isdaprov|6(e)}} of the {{isdama}} itself and the recourse is to a net sum. Netting does ''not'' happen under the {{isdaprov|Transactions}} — on the theory of the game there are no outstanding Transactions at the point of netting; just payables.
 
Therefore, if your [[credit support]] (particularly [[guarantee]]s or [[LC|letters of credit]]) explicitly reference amounts due under specific {{isdaprov|Transaction}}s, you may lose any credit support at precisely the point you need it.
 
Which would be a bummer.
 
Further commentary on the [[Guarantee]] page.
 
{{exposure under csa}}
 
{{sa}}
*[[Guarantee]]
*{{isdaprov|Close-out Amount}}
*{{isdaprov|Unpaid Amount}}
{{ref}}

Revision as of 10:08, 16 March 2020

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