Credit Event Upon Merger - ISDA Provision
2002 ISDA Master Agreement
Section 5(b)(v) in full
Related agreements and comparisons
Resources and navigation
Content and comparisons
Numbering Discrepancy: Note the numbering discrepancy in Section 5(b) between the 1992 ISDA and 2002 ISDA. This is caused by a new 5(b)(ii) (Force Majeure Event) in the 2002 ISDA before Tax Event, which is thus shunted from Section 5(b)(ii) (in the 1992 ISDA) to Section 5(b)(iii) (in the 2002 ISDA).
- Section 5(a)(viii) is Merger Without Assumption.
1992 ISDA upgrade
Even before the 2002 ISDA was published it was common to upgrade the 1992 ISDA formulation to something resembling the glorious concoction that became Section 5(b)(v) of the 2002 ISDA. The 1992 wording is a bit lame, really. See the panel below right for a snapshot of the difference
On the other hand, you could count the number of times an ISDA Master Agreement is closed out on account of Credit Event Upon Merger on the fingers of one hand, even if you had lost all the fingers on that hand to an industrial accident. So — yeah.
Pay attention to the interplay between this section and Section 7(a) (Transfer). You should not need to amend Section 7(a) (for example to require equivalence of credit quality of any transferee entity etc., because that is managed by CEUM.
Note also the interrelationship between CEUM and a Ratings Downgrade ATE, should there be one. One can be forgiven for feeling a little ambivalent about CEUM because it is either caught by Ratings Downgrade or, if there is no requirement for a general Ratings Downgrade, insisting on CEUM seems a bit arbitrary (i.e. why do you care about a downgrade as a result of a merger, but not any other ratings downgrade?)
Hedge funds and CEUM
Really, we are a hedge fund, we’re not rated, we’re not going to be and we’re hardly going to merge, are we? and even if we did we wouldn’t do it in a way that disadvantaged existing investors. So must we really have a CEUM? We really must, lest the sky fall in on our heads. For it is written: it is the credit officer’s refrain.
- We really need not.