Template:Isda 5(a) comp
5(a)(i): The significant change between 1992 ISDA and 2002 ISDA is the restriction of that grace period from three {{{{{1}}}|Local Business Day}}s to one. And a bit of convolutional frippery in introducing {{{{{1}}}|Local Delivery Day}}s as well.
Compare also Failure to Pay under the 2014 ISDA Credit Derivatives Definitions, which is subtly different given the different purpose that it plays under a CDS.
5(a)(ii): ====Redlines====
- 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
- 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
- 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)
Discussion
Note the addition of {{{{{1}}}|Repudiation of Agreement}} to the 2002 ISDA. Common law purists like the JC will grumble that you don’t really need to set out repudiation as a breach justifying termination of a contract, because that’s what it is by definition but stating the bleeding obvious has never stopped ISDA’s crack drafting squad™ before. Also, an interesting question: if you do feel the need to provide for what is in essence an evolving common law remedy, then, to the extent your draw that remedy inside the cope of the common law remedy — or the common law evolves some new different and remedy that no-one had thought of before — then what? Section {{{{{1}}}|9(d)}} has you covered. Woo-hoo.
5(a)(iii): A bit of pedantic flannel found its way into the 2002 ISDA — it captures not just the failure of the Credit Support Document itself, but any security interest granted under it, catering to the legal eagle’s most paranoid fears that a contractual right can have some sort of distinct ontological existence independently from the agreement which gives it breath and enforceable currency in the first place. But otherwise the same.
5(a)(iv): No change between 1992 ISDA and 2002 ISDA.
5(a)(v): {{{{{1}}}|DUST}} has been expanded in five significant ways by the 2002 ISDA. See the summary and general sections for details.
5(a)(vi): The 2002 ISDA updates the 1992 ISDA’s Cross Default so that if the combined amount outstanding under the two limbs of {{{{{1}}}|Cross Default}} exceed the {{{{{1}}}|Threshold Amount}}, then it will be an {{{{{1}}}|Event of Default}}. Normally, under the 1992 ISDA, {{{{{1}}}|Cross Default}} requires one or the other limbs to be satisfied — you can’t add them together. This was a bit of a snafu.
The two limbs are:
- a default under a financial agreement that would allow a creditor to accelerate any indebtedness that party owes it;
- a failure to pay on the due date under such agreements after the expiry of a grace period.
Cross default in securities financing arrangements
Neither the 2010 GMSLA nor the Global Master Repurchase Agreement have, as standard, either a cross default or a default under specified transaction provision. Unless some bright spark thinks it is a good idea to negotiate one in.
Comaprison with cross acceleration
Cross acceleration is essentially cross default only tweaked such that it is only triggered on actual acceleration of 3rd party indebtedness rather than the mere potential for acceleration. This is enough of a difference to make it worth its own page so if you're interested in that please see {{{{{1}}}|Cross Acceleration}}.
5(a)(vii): ====Redlines====
- 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
- 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
- 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)
Discussion
There are two differences between the 1992 ISDA and 2002 ISDA definitions of Bankruptcy.
First, the 2002 ISDA has a slightly more specific concept of “insolvency”. In limb 4 (insolvency proceedings) a new limb has been included to cover action taken by an entity-specific regulator or supervisor (as opposed to a common or garden insolvency proceeding): If initiated by a regulator, the game’s up as soon as the action is taken. If initiated by a random creditor, the action must have resulted in a winding-up order, or at least not have been discharged in 15 (not 30) days.
About that grace period. Second, and unnervingly for those of little faith in their own accounts payble departments, the grace period in which one must arrange the dismissal of a vexations or undeserving insolvency petition (under {{{{{1}}}|5(a)(vii)}}(4)) or the exercise of security over assets (under {{{{{1}}}|5(a)(vii)}}(7)) is compressed from 30 days to 15 days.
5(a)(viii): ====Redlines====
- 1987 ⇒ 1992: Redline of the ’92 vs. the ’87: comparison (and in reverse)
- 1992 ⇒ 2002: Redline of the ’02 vs. the ’92: comparison (and in reverse)
- 1987 ⇒ 2002: Redline of the ’92 vs. the ’87: comparison (and in reverse)
Discussion
ISDA’s crack drafting squad™ giveth and ISDA’s crack drafting squad™ taketh away.
In 1992, ISDA’s crack drafting squad™ added references to a party’s {{{{{1}}}|Credit Support Provider}}s and {{{{{1}}}|Credit Support Document}}s — the 1987 ISDA did not have a concept of a {{{{{1}}}|Credit Support Provider}} at all (though it does contemplate {{{{{1}}}|Credit Support Document}}s).
In 2002 some further enhancements: ISDA’s crack drafting squad™ had contrived some different ways of describing how a company might reorganise itself (specifically, “reorganisation, reincorporation or reconstitution”). It also, uncharacteristically, deletes the text “by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement”. This removes an unnecessary restriction on the foregoing event (the surviving entity failing to assume all the obligations under the ISDA) so makes sense: the squad here is just correcting its own verbal profligacy.