Representations - IM CSD Provision

2018 ISDA Credit Support Deed (IM) (English law) A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →NY OG →Eng OG →NY VM →Eng VM →Eng IM Rights and Remedies 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. Original text 8 Certain Rights and Remedies 8(a) Secured Party’s Rights and Remedies (i) General. (A) For the purposes of all powers implied by statute, the Obligations are deemed to have become due and payable on the date of this Deed. (B) Section 103 (restricting the power of sale) and section 93 (restricting the right of consolidation) of the Act shall not apply to this Deed. (ii) Secured Party’s Rights. If at any time a Secured Party Rights Event has occurred and is continuing, then, unless the Chargor has paid in full all of its Obligations, the Secured Party shall, without prior notice to the Chargor, be entitled to put into force and to exercise immediately or as and when it may see fit any and every power possessed by the Secured Party by virtue of this Deed or available to a secured creditor and in particular (but without limitation) the Secured Party shall have power in respect of Posted Credit Support (IM): (A) to sell all or any of the Posted Credit Support (IM) (other than Posted Credit Support (IM) in the form of cash) in any manner permitted by law upon such terms as the Secured Party shall in its absolute discretion determine; (B) to apply all or any of the Posted Credit Support (IM) in the form of cash in or towards the payment or discharge of any amounts payable by the Chargor with respect to any Obligation in such order as the Secured Party sees fit; (C) to the extent that the assets charged under this Deed constitute "financial collateral" and this Deed and the obligations of the Chargor under this Deed constitute a "security financial collateral arrangement" (in each case for the purpose of and as defined in the Financial Collateral Arrangements (No. 2) Regulations 2003) (the “Regulations”), to appropriate all or any part of that financial collateral in or towards the satisfaction of the Obligations in such order as the Secured Party sees fit; and (D) to collect, recover or compromise and to give a good discharge for any moneys payable to the Chargor in respect of any of the Posted Credit Support (IM); and for the purposes of this Paragraph 8(a) the Secured Party shall be entitled to make any currency conversions or effect any transaction in currencies which it thinks fit, and to do so at such times and rates as it thinks proper. (iii) Power of Attorney. The Chargor, by way of security and solely for the purpose of more fully securing the performance of the Obligations, irrevocably appoints the Secured Party the attorney of the Chargor on its behalf and in the name of the Chargor or the Secured Party (as the attorney may decide) to do all acts, and execute all documents which the Chargor could itself execute, in relation to any of the Posted Credit Support (IM) or in connection with any of the matters provided for in this Deed, including (but without limitation): (A) to execute any transfer, bill of sale or other assurance in respect of the Posted Credit Support (IM); (B) to exercise all the rights and powers of the Chargor in respect of the Posted Credit Support (IM); (C) to ask, require, demand, receive, compound and give a good discharge for any and all moneys and claims for moneys due and to become due under or arising out of any of the Posted Credit Support (IM); (D) to endorse any cheques or other instruments or orders in connection with any of the Posted Credit Support (IM); and (E) to make any claims or to take any action or to institute any proceedings which the Secured Party considers to be necessary or advisable to protect or enforce the security interest created by this Deed. (iv) Protection of Purchaser. (A) No purchaser or other person dealing with the Secured Party or a Receiver or with its attorney or agent shall be concerned to enquire (1) whether any power exercised or purported to be exercised by the Secured Party has become exercisable, (2) whether any Obligation remains due, (3) as to the propriety or regularity of any of the actions of the Secured Party or (4) as to the application of any money paid to the Secured Party. (B) In the absence of bad faith on the part of such purchaser or other person, such dealings shall be deemed, so far as regards the safety and protection of such purchaser or other person, to be within the powers conferred by this Deed and to be valid accordingly. The remedy of the Chargor in respect of any impropriety or irregularity whatever in the exercise of such powers shall be in damages only. (v) Valuation of Appropriated Collateral. Subject to Paragraph 13, where any Posted Credit Support (IM) is appropriated, the value of the appropriated Posted Credit Support (IM) will be the Appropriation Value of such Posted Credit Support (IM) as of, or as soon as reasonably practicable after, the date on which such Posted Credit Support (IM) is appropriated. (vi) Appointment of Receiver. (A) Except as provided below, the Secured Party may appoint any one or more persons to be a Receiver of all or any part of the Security Assets if: (1) the security granted under this Deed has become enforceable; or (2) the Chargor so requests the Secured Party in writing at any time. (B) Any appointment under Paragraph 8(a)(vi)(A) above may be by deed, under seal or in writing under its hand. (C) Any restriction imposed by law on the right of a mortgagee to appoint a Receiver (including under section 109(1) of the Act) does not apply to this Deed. (vii) Removal of Receiver and Remuneration. (A) The Secured Party may by writing under its hand remove any Receiver appointed by it and may, whenever it thinks fit, appoint a new Receiver in the place of any Receiver whose appointment may for any reason have terminated. (B) The Secured Party may fix the remuneration of any Receiver appointed by it and any maximum rate imposed by law (including under section 109(6) of the Act) will not apply. (viii) Agent of the Chargor. (A) A Receiver will be deemed to be the agent of the Chargor for all purposes and, accordingly, will be deemed to be in the same position as a Receiver duly appointed by a mortgagee under the Act. The Chargor is solely responsible for the contracts, engagements, acts, omissions, defaults and losses of a Receiver and for liabilities incurred by a Receiver. (B) No Secured Party will incur any liability (either to the Chargor or to any other person) by reason of the appointment of a Receiver or for any other reason. (ix) Relationship with Secured Party. To the fullest extent allowed by law, any right, power or discretion conferred by this Deed (either expressly or impliedly) or by law on a Receiver may after the security granted under this Deed becomes enforceable be exercised by the Secured Party in relation to any Security Asset without first appointing a Receiver or notwithstanding the appointment of a Receiver. (x) Powers of Receiver. (A) General (1) A Receiver has all the rights, powers and discretions set out below in this sub-paragraph in addition to those conferred on it by any law. This includes all the rights, powers and discretions conferred on a receiver (or a receiver and manager) under the Act and the Insolvency Act 1986. (2) If there is more than one Receiver holding office at the same time, each Receiver may (unless the document appointing him states otherwise) exercise all the powers conferred on a Receiver under this Deed individually and to the exclusion of any other Receiver. (B) Possession: A Receiver may take immediate possession of, get in and collect any Security Asset and may subsequently relinquish such possession. (C) Sale of assets (1) A Receiver may sell, exchange, convert into money and realise any Security Asset by public auction or private contract and generally in any manner and on any terms which he thinks fit. (2) The consideration for any such transaction may consist of cash, debentures or other obligations, shares, stock or other valuable consideration and any such consideration may be payable in a lump sum or by instalments spread over any period which he thinks fit. (D) Receipts: A Receiver may give a valid receipt for any moneys and execute any assurance or thing which may be necessary or desirable for realising any Security Asset. (E) Delegation: A Receiver may delegate his powers in accordance with this Deed. (F) Other powers: A Receiver may: (1) do all other acts and things which he may consider desirable or necessary for realising any Security Asset or incidental or conducive to any of the rights, powers or discretions conferred on a Receiver under or by virtue of this Deed or law; (2) exercise in relation to any Security Asset all the powers, authorities and things which he would be capable of exercising if he were the absolute beneficial owner of that Security Asset; and (3) use the name of the Chargor for any of the above purposes. 8(b) Chargor’s Rights and Remedies. If at any time a Chargor Rights Event has occurred and is continuing, then: (i) the Chargor may exercise all rights and remedies available to a chargor under applicable law with respect to Posted Credit Support (IM); and (ii) the Secured Party will be obligated immediately to transfer or instruct the Custodian (IM) to transfer all Posted Credit Support (IM) to the Chargor. 8(c) Deficiencies and Excess Proceeds. (i) A party will remain liable for all Obligations of such party remaining unsatisfied after the exercise of rights and remedies by the other party (the “Exercising Party”) under Paragraph 8(a) or 8(b) above. (ii) Following the exercise of such rights and remedies, the Exercising Party will, as the Secured Party, transfer or instruct the Custodian (IM) to transfer to the other party any proceeds and Posted Credit Support (IM) remaining after satisfaction in full of all payment and delivery Obligations of such other party, including (if applicable) the transfer and release to the Exercising Party by such other party, in its capacity as the Secured Party, of all Posted Credit Support (IM) hereunder and the return of any other amounts and items posted by the Exercising Party to such other party as credit support under any Other CSA. 8(d) Final Returns. Subject to Paragraph 8(c) above, upon satisfaction in full of all Obligations of the Chargor (except for any potential liability under Section 2(d) of the Agreement or any obligation to transfer any interest payment under any Other CSA), the Secured Party will transfer or instruct the Custodian (IM) to transfer to the Chargor all Posted Credit Support (IM) (if any). The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 8 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 Resources and Navigation Index: Click ᐅ to expand: CSA

Comparisons

security interest CSAs: The 1994 NY CSA and 2016 NY VM CSA versions, both being under New York law and of broadly the same intent, barring the scattering of (VM)s all over the shop, are predictably similar, with one difference: the 2016 NY VM CSA contemplates the interplay of a regulatory margin VM CSA with any other CSA for non-regulated business, so has to deal with “any Cash amounts and the Cash equivalent of any non-Cash items posted to the Pledgor by the Secured Party as margin under any Other CSA (other than any Other CSA Excluded Credit Support)”. See this comparison.

title transfer CSAs: There is no “Certain rights and Remedies” clause under either of the title transfer CSAs, so any stray references to them redirect to their security interest CSA equivalents

IM CSD: The 2018 English law IM CSD, being under English law with all its own peculiarities about taking security, and also not really contemplating rehypothecation and that strikes against the heart and soul of regulatory IM, is quite different.

Basics

Secured Party’s Rights and Remedies

“If there is a Secured Party Rights Event ...” sounds casual, nonchalant, easy-to-navigate sort of a question, doesn’t it. Hold on to that thought as you stumble into the purgatorial torture chamber — no, no; that is not an oxymoron: the precise instrument of torture that ISDA’s crack drafting squad™ favours most is a form of grey, entropic monotony, that cold, incessant drip on your forehead that you would expect in purgatory and not the ninth circle of hell — that is the ’squad’s definition of “Secured Party Rights Event”. Above the door to that chambre d’ennuyeux is inscribed: “abandon hope, all ye who enter here”.

Oh, how you will regret that you ever asked.

Deficiencies and Excess Proceeds

All versions do the same thing: Once the security has been exercised, proceeds realised and the outstanding amount due settled, the Secured Party must return any excess of the realised proceeds to the posting party, and if there is a shortfall after the security has been realised and applied against the debt, the posting party remains liable for it. This is all good standard security-taking stuff.

Final Returns

All versions get to more or less the same place: Once all Obligations are fully settled (with an exception for Taxes — we suppose because they could be imposed retrospectively, so it’s impossible to discharge them definitively — the Secured Party has to give the Posted Credit Support back.

This ought to happen automatically where we are talking about variation margin — Q.E.D., if your Obligations are all settled you have no Exposure so your counterparty has no grounds to hold Posted Credit Support — but for Independent Amounts or initial margin posted under an 2018 English law IM CSD, this is not necessarily the case: the CSA itself might specify an independent Independent Amount that is not conditional on any Transaction. (This is not how most dealers handle initial margin on their swaps — it tends to be Transaction-specific — but this is how the original CSAs were conceived at the time of the First Men.)

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