Template:Isda Affected Party summ

One who is subject to a Section {{{{{1}}}|5(b)}} {{{{{1}}}|Termination Event}}, but not a Section {{{{{1}}}|5(a)}} {{{{{1}}}|Event of Default}} — thus one of a marginally less opprobrious character, seeing as {{{{{1}}}|Termination Event}}s are generally not considered to be one’s fault as such, but just sad 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 {{{{{1}}}|Termination Event}} or an {{{{{1}}}|Event of Default}}, so there is much “{{{{{1}}}|Defaulting Party}} and/or {{{{{1}}}|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.

The practical difference between an “Affected Party” and a “Defaulting Party”

What is the practical, economic difference between being closed out on the same {{{{{1}}}|Transaction}} for an {{{{{1}}}|Event of Default}} and a {{{{{1}}}|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 {{{{{1}}}|Tax Event upon Merger}} is also a {{{{{1}}}|Credit Event Upon Merger}} and, for that matter, also a {{{{{1}}}|Force Majeure Event}}? That kind of question.

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One lump or two?

And given its relentless quest for infinitesimal particularity — and accepting for a moment it is warranted — perhaps ISDA’s crack drafting squad™ has a point, for “{{{{{1}}}|Affected Party}}” appears in subtly different guises in each of the {{{{{1}}}|Termination Events}}. Sometimes there is one {{{{{1}}}|Affected Party}}; sometimes there are two.

For all {{{{{1}}}|Termination Events}} except {{{{{1}}}|Credit Event Upon Merger}}, there is at least the theoretical potential that both parties could be affected: the same {{{{{1}}}|Illegality}}, can impede both parties’ performance, obviously enough; as can the same pandemic, plague of locusts or aquatic invastion be a {{{{{1}}}|Force Majeure}} for both. Likewise a {{{{{1}}}|Tax Event}} — if both parties are in the same jurisdiction — even if they are not, come to think of it — and for the same reason {{{{{1}}}|Tax Event Upon Merger}} might stretch its clammy claws to impact even the innocent b bystander. But a {{{{{1}}}|Credit Event Upon Merger}} affects only the party being merged, and while {{{{{1}}}|Additional Termination Event}}s are al fresco, and therefore could potentially be affect both, in practice they tend to be heavily credit-focussed, and really should have been designated as “Additional Events of Default”.

Editorial comment: had only ISDA’s crack drafting squad™ thought to call {{{{{1}}}|Credit Event Upon Merger}} an {{{{{1}}}|Event of Default}} and not a {{{{{1}}}|Termination Event}}, much of this confusion might have been saved.

In any case, where there are two {{{{{1}}}|Affected Parties}} there is not a “victim” and a “perpetrator” as such, but you are in this odd new millennial world where everyone’s a victim, either party may trigger the {{{{{1}}}|Termination Event}}, both may estimate replacement prices on termination and they have to split the difference.

Where there is one {{{{{1}}}|Affected Party}}, only the {{{{{1}}}|Unaffected Party}} can terminate, and it is responsible for obtaining the valuation.