Template:M summ 2002 ISDA 5(a)(iii)

Note the charming contingency that ISDA’s crack drafting squad™ allows that a counterparty might default under a credit assurance offered by someone else altogether.

Before you even put your hand up: no, a Credit Support Annex between the two counterparties is not a Credit Support Document, at least under the English law construct: there it is a “Transaction” under the ISDA Master Agreement. It is somewhat different with a 1994 NY CSA, but even there the Users’ Guide cautions against treating a direct swap counterparty as a “Credit Support Provider” — the Credit Support Provider is meant to be a third party. However we think the effluxion of time and habitual pedantry of our American friends has eroded that presumption: these days a 1994 NY CSA is routinely listed as a Credit Support Document.

Therefore, tediously — and we think it was avoiding precisely this tediosity that the Users’ Guide had in mind, but, best laid plans and all that — there is an ontological difference between the mechanics of close out when it comes to a failure under a 1994 NY CSA when compared to non-payment under a 1995 CSA. A 1995 CSA is a Transaction under the ISDA Master Agreement and is not a Credit Support Document. A failure to meet a margin call under a that annex or any of its modern English-law successors is therefore a Failure to Pay or Deliver under Section 5(a)(i) of the actual ISDA Master Agreement; a failure to post under a 1994 NY CSA is a Section 5(a)(iii) credit support failure.

Does this, in practical point of fact, make any difference at all? Is a 5(a)(i) Event of Default somehow stronger; more intimately connected to what you are about and therefore subtly preferable; more proper; having greater correctitude; or a matter of better form?

As far as this old goat comprehends the world, it is not.