Affected Party - ISDA Provision
Content and comparisons
Not even ISDA’s crack drafting squad™ could confect something worthwhile to say which might improve this Spartan piece of text. But note the concept of Affected Party is sprayed liberally throughout Section 5(b), and it means something different in almost every context so you’re guaranteed to have fun there.
Elsewhere there is much monkeying around as regards the concept of Illegality, particularly insofar as it relates to Credit Support Documents, and the newly introduced Force Majeure.
Summary
The Affected Party is the one who is subject to a Section 5(b) Termination Event, as opposed to the perpetrator of a Section 5(a) Event of Default — thus one of a marginally less opprobrious character, seeing as Termination Events are generally not considered to be one’s fault as such, but just regrettable things that happen that no-one expected, or wanted, but bring what was once a beautiful relationship to an end.
It’s not you, it’s — well, it’s not me either — it’s just that confounded tax event that occurred upon your recent merger.
Note that, in its wisdom, ISDA’s crack drafting squad™ chose not to have a generic term for the sort of person who is subject to either a Termination Event or an Event of Default, so there is much “Defaulting Party and/or Affected Party, as the case may be” sort of malarkey. This depresses we prose stylists, but ISDA’s crack drafting squad™ has never cared about us, so we should hardly be surprised.
Practical differences between “Affected Party” and “Defaulting Party”
What is the practical, economic difference between being closed out on the same Transaction for an Event of Default and a Termination Event?
This is something that all ISDA ninjas know, or sort of intuit, in a sort of semi-conscious, buried-somewhere-deep-in-the-brain-stem kind of way, but they may mutter darkly and try to change the subject if you ask them to articulate it in simple English.
To be fair the topic might be chiefly of academic interest were it not for the unfortunate habit of the same “real world” event potentially comprising more than one variety of termination right. This leads to some laboured prioritisation in the ISDA, and sometimes some in the Schedule too. What if my Tax Event upon Merger is also a Credit Event Upon Merger and, for that matter, also a Force Majeure Event? That kind of question.