Condition End Date - ISDA Provision

2002 ISDA Master Agreement A Jolly Contrarian owner’s manual™ 2(e) 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. 2(e) in all its glory 2(e) Condition End Date. (i) If an Event of Default occurs, the Defaulting Party may, by notice to the non-Defaulting Party identifying the Event of Default and confirming its occurrence, specify that clause (iii) will apply to that Event of Default. (ii) If a Potential Event of Default occurs with respect to a party, that party may, by notice to the other party identifying the Potential Event of Default and confirming its occurrence: (A) waive any requirement that notice be given or that any period of time elapse, by virtue of which waiver the Potential Event of Default will become an Event of Default; and (B) specify that clause (iii) will apply to that Event of Default. (iii) If this clause (iii) applies to an Event of Default, then the condition precedent specified in Section 2(a)(iii)(1) with respect to that Event of Default will cease to be a condition precedent to each obligation of the non-Defaulting Party on the relevant Condition End Date. Any obligation that would have been payable or deliverable by the non-Defaulting Party but for Section 2(a)(iii)(1) will become payable or deliverable on the first Local Business Day falling after the Condition End Date (together with interest payable on demand in accordance with Section 9(h)(i)(3)(A) or compensation and interest payable on demand in accordance with Section 9(h)(i)(4)(A), as the case may be). (iv) Subject to clause 2(e)(v) below, if, after a party has given a notice under clause (i) or (ii) above with respect to an Event of Default or Potential Event of Default, another Event of Default or Potential Event of Default occurs with respect to that party, then, with respect to the earlier Event of Default, no Condition End Date will occur and therefore clause (iii) will not apply. This will not affect the right of that party to give a notice under clause (i) in respect of the subsequent Event of Default or under clause (ii) in respect of the subsequent Potential Event of Default. This clause (iv) is without prejudice to the right of the Defaulting Party to give a new notice to the non-Defaulting Party under clause (i) with respect to the earlier Event of Default. (v) If the Defaulting Party has given a notice under clause (i) above in respect of an Event of Default under Section 5(a)(vii), then clause (iv) will not apply.” Section 14 of the Agreement is amended to add in the appropriate alphabetical position a new definition of “Condition End Date”, reading in its entirety as follows: “Condition End Date” means, with respect to an Event of Default, the day falling 90 days after a notice given by the Defaulting Party under Section 2(e)(i) or Section 2(e)(ii) is effective if the Event of Default is still continuing on that day.” edit Related agreements and comparisons Click here for the text of Section 2(e) in the 1992 ISDA It is hardly worth trying a comparison between Section 2(e) and Section 9(h) but you can in any case compare them here. Resources and Navigation This provision in the 1992 Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project Navigation Preamble | 1 • (a) (b) (c) | 2 • (a) (b) (c) (d) | 3 • (a) (b) (c) (d) (e) (f) (g) | 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) Force Majeure Event 5(b)(iii) Tax Event 5(b)(iv) Tax Event Upon Merger 5(b)(v) Credit Event Upon Merger 5(b)(vi) Additional Termination Event (c) (d) (e) | 6 • (a) (b) (c) (d) (e) (f) | 7 | 8 • (a) (b) (c) (d) | 9 • (a) (b) (c) (d) (e) (f) (g) (h) | 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

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Section 2(e), dealing with default interest, was removed in the 2002 ISDA, and replaced with a spikier, more fulsome Section 9(h) (Interest and Compensation).

A new and different Section 2(e) for the 2002 ISDA was almost revived after the global financial crisis as a tool for imposing a “use it or lose it” trigger on Section 2(a)(iii), but the moment passed. See Condition End Date for more information.

Summary

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Numbering confusion alert: the 1992 ISDA has a Section 2(e), dealing with Default Interest and other amounts payable by way of compensation for failing to pay or deliver (over and above your Section 6 close out rights). This Section was moved in the 2002 ISDA to Section 9(h). We know not why, but there is sure to have been a reason and it is water under the bridge now.

So as a result there was not, and is not, a Section 2(e) in the 2002 ISDA.

“Condition End Date”

But there might have been. ISDA went through a period of hand-wringing after the global financial crisis, which revealed to the world how unsatisfactory the existing section 2(a)(iii) was.

The idea was to allow the victim of a 2(a)(iii) exercise — that is, the person in putative breach — to preempt the condition precedent, and say to the innocent party, “Well, use it or lose it within 90 days” — the titular Condition End Date.

Well, the moment passed, but some have adopted this as a standard in their schedules — good sports, for the most part — but regulator angst has long since moved on, as did legal eagle appetite to amend swathes of standard contracts for a contingency no-one in their right mind would use, or for that matter can make head or tail of.

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

• Mechanics:

• How and when 2(a)(iii) is or, more to the point not, triggered.
• The confusion arising from no-one knowing whether 2(a)(iii) applies.
• The confusion arising from not knowing when it applies.
• The JC’s theory about why anyone thought 2(a)(iii) was a good idea in the first place.
• The JC’s view that even if once upon a time it was, Section 2(a)(iii) is no longer fit for purpose.
• How Section 2(a)(iii) held up during the sanctions extravaganza when Russia invaded Ukraine (TL;DR: it didn’t help!)

• Regulatory issues

• Why regulators don’t like 2(a)(iii).
• What the courts think of 2(a)(iii) — in a nutshell, they are confused about it.
• A table comparing the six major decisions on the clause.

• Practical issues:

• How Section 2(a)(iii) operates in the case of non-payment-or-delivery defaults.
• How corporate buyers of fully paid options might feel about 2(a)(iii) (hint: not happy!)
• Amendments those corporates might think about making if they want to feel happier.

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See also

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• The famous, infamous, much-misunderstood, dare we say flawed Section 2(a)(iii) of the ISDA, and our summary of the litigationey cases surrounding it.