Merger Without Assumption - ISDA Provision

From The Jolly Contrarian
Revision as of 15:17, 21 November 2019 by Amwelladmin (talk | contribs)
Jump to navigation Jump to search
ISDA Anatomy™


In a Nutshell Section 5(a)(viii):

5(a)(viii) Merger Without Assumption. The party (or a Credit Support Provider) merges with or transfers or all or substantially all its assets to another entity and:―
(1) the resulting entity does not assume all the original party’s obligations under this Agreement (or Credit Support Document); or
(2) the Credit Support Document does cover the resulting party’s obligations under this Agreement.

view template

2002 ISDA full text of Section 5(a)(viii):

5(a)(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, or reorganises, reincorporates or reconstitutes into or as, another entity and, at the time of such consolidation, amalgamation, merger, transfer, reorganisation, reincorporation or reconstitution:―
5(a)(viii)(1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party; or
5(a)(viii)(2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.

view template

Click here for the text of Section 5(a)(viii) in the 1992 ISDA

Index: Click to expand: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: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityFMTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSSCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUM
Early Termination 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculations; Payment DatePayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments 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.


When a firm merges into, or is taken over by, another, some magical — or unexpected — things can happen. Not for nothing does the ISDA Master Agreement labour over the very description: that this might be a “consolidation, amalgamation, merger, transfer, reorganisation, reincorporation or reconstitution” — prolix even by ISDA’s lofty standards — should tell you something. Generations of corporate lawyers have forged whole careers — some never leaving the confines of their law practices for forty or more years — out of the manifold ways one can put companies together and take them apart again.

Your correspondent is not one of these people, and has little more to say about mergers, except that what happens to live contracts at the time of such chicanery will depend a lot on just how the companies and their assets are being joined or torn assunder.

If the ISDA Master Agreement and its extant Transactions carry across — which in a plain merger, they ought to — all well and good.[1]

But in some cases the Transactions might not carry across. Perhaps the resulting entity has no power to transact swaps. Perhaps it is in a jurisdiction in which they — or ISDA’s sainted close-out netting provisions, about which so many tears and so much blood is annually spilled — cannot be enforced. Perhaps it just refuses to honour them: the ISDA’s Merger Without Assumption addresses all of those contingencies.

This is the clause that would have been covered by Section 5(a)(ii)(2) repudiation, had the resulting entity accepted the contract at all in the first place. It can be triggered if the resulting party repudiates any outstanding Transactions under the ISDA Master Agreement (or otherwise they are not binding on it); or any Credit Support Document stops working as a result of the merger.

And “all or substantially all” means?

There’s not a lot of case law on it. Some say 90%. Some say 75%. Some people — your correspondent included — say “shoot me”. but interestingly the Section doesn’t seem to bite where one entity transferred all of its assets, half-half, into two distinct entities. I dunno — could it happen? Search me. You’ll have to go and find one of those corporate lawyers I was talking about before to find that out. They love that kind of stuff.

See also

References

  1. Though watch out for traps: what if both merging companies have ISDAs with the same counterparty, but on markedly different terms? Which prevails? Do they both? Which one do you use for new Transactions? This you will have to hammer out across the negotiating table.