Credit Support Balance - CSA Provision

ISDA 1995 English Law Credit Support Annex A Jolly Contrarian owner’s manual™ Go premium Overview — Summary — Premium — See also — Wikitext Crosscheck: →NY OG →Eng OG →NY VM →Eng VM →Eng IM Credit Support Balance 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. Original text “Credit Support Balance” means, with respect to a Transferor on a Valuation Date, the aggregate of all Eligible Credit Support that has been transferred to or received by the Transferee under this Annex, together with any Distributions and all proceeds of any such Eligible Credit Support or Distributions, as reduced pursuant to Paragraph 2(b), 3(c)(ii) or 6. Any Equivalent Distributions or Interest Amount (or portion of either) not transferred pursuant to Paragraph 5(c)(i) or 5(c)(ii) will form part of the Credit Support Balance. The varieties of ISDA CSA Subject 1994 NY 1995 Eng 2016 VM NY 2016 VM Eng 2018 IM Eng Preamble Pre Pre Pre Pre Pre Interpretation 1 1 1 1 1 Security Interest 2 - 2 - 2 Credit Support Obligations 3 2 3 2 3 Transfers, Calculations and Exchanges - 3 - 3 - Conditions Precedent, Transfer Timing, Calculations and Substitutions 4 - 4 - 4 Dispute Resolution 5 4 5 4 5 Holding and Using Posted Collateral 6 - 6 - 6 Transfer of Title, No Security Interest - 5 - 5 - Events of Default 7 6 7 6 7 Rights and Remedies 8 - 8 - 8 Representations 9 7 9 7 9 Expenses 10 8 10 8 10 Miscellaneous 11 9 11 9 11 Definitions 12 10 12 10 12 Elections and Variables 13 11 13 11 13 Resources and Navigation Index: Click ᐅ to expand: CSA

Comparisons

Redlines

• 1994 ⇒ 1995: Redline of the ’94 NY vs. the ’95 English: comparison (and in reverse)
• 1995 ⇒ 2016: Redline of the ’95 English vs. the ’16 VM English: comparison (and in reverse)

I will try to get round to the others later.

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Discussion

There is no concept of a “Credit Support Balance” in the American versions of the CSA. The equivalent in the security interest CSAs is Posted Credit Support which, for most purposes, boils down to Posted Collateral (“Posted Other Support” being a rare old thing).

Except for that cheeky parenthetical “and as adjusted pursuant to Paragraph 5(c)(ii)” — abandon hope all ye who enter there, but knock yourself out if you really must — together with the dreary scattering of “(VM)” all over the shop and a reversion to the archaic expression “thereof”, this is the same in the 1995 CSA as for the 2016 VM CSA.

Basics

The Credit Support Balance is an important part of the recipe when cooking up a Delivery Amount or Return Amount, because it is essentially the amount of credit support you have already posted. The transfer will, therefore, be your Credit Support Amount/Exposure less that sum.

In its own special way it is also a little impish, because it comes and goes depending on how you are doing. If you are doing really well (here’s hoping!) it will be your counterparty’s Credit Support Balance, and you won’t have one. This means, if all the Transactions were terminated and the counterparty settled them in full, you would have to give that Credit Support Balance back. But the moment your luck turns, you don’t have a Credit Support Balance any more, but your counterparty does.

This is all quite hard to explain elegantly, so ISDA’s crack drafting squad™ doesn’t really try, but the unusual nature of a swap as a bilateral agreement is really the problem.

Note that Interest Amounts and Distributions, as long as they (i) have not yet been returned to the Transferor and (ii) are Eligible Credit Support, are included in the Credit Support Balance. Needless to say, amounts that are not Eligible Credit Support aren’t counted towards the Credit Support Balance but an amount due by Transferee to Transferor which would be Unpaid Amounts on an Event of Default etc, and for which Transferor would be an unsecured creditor.

Note, per the definition of Value, “items that are comprised in a Credit Support Balance and are not Eligible Credit Support” are valued at zero.

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See also

• Credit Support Amount under the 1994 NY CSA