Termination Event - 1992 ISDA Provision

1992 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Termination Event in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here. Termination Event in all its glory “Termination Event” means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. edit Related agreements and comparisons Related Agreements Click here for the text of Section Termination Event in the 2002 ISDA Comparisons Template:Isdadiff Termination Event 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 Premium version of this page

Overview

edit

See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA.

Numbering Discrepancy: Note the numbering discrepancy in Section 5(b) between the 1992 ISDA and 2002 ISDA. This is caused by a new 5(b)(ii) (Force Majeure Event) in the 2002 ISDA before Tax Event, which is thus shunted from Section 5(b)(ii) (in the 1992 ISDA) to Section 5(b)(iii) (in the 2002 ISDA).

A Termination Event is an event justifying one party unilaterally terminating a Transaction — or sometimes all Transactions — but that is generally of a nature that does not cast aspersions of impropriety on the other, or “Affected”, party. This makes a difference when it comes to how one calculates the Close-out Amount for the Transaction in question.

Summary

edit

Adding any new Termination Event must ALWAYS be achieved by labelling it a new “Additional Termination Event” under Section 5(b)(v), and not a separate event under a new Section 5(b)(vi) etc. If, instead of being expressed as an “Additional Termination Event”, which is how the ISDA Mechanism is intended to operate, it is set out as a new “5(b)(vi)” it is not designated therefore as any of an “Illegality”, “Tax Event”, “Tax Event Upon Merger”, “Credit Event Upon Merger” or “Additional Termination Event”, so therefore, read literally, is not caught by the definition of “Termination Event” and none of the Termination provisions bite on it.

I mention this because we have seen it happen. You can take a “fair, large and liberal view" that what the parties intended was to create an ATE, but why suffer that anxiety?

Premium content

Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics 👇

• The JC’s famous Nutshell™ summary of this clause

edit

See also

edit