Designated Event - ISDA Provision
2002 ISDA Master Agreement
'Definition of' Designated Event in a Nutshell™
Use at your own risk, campers!
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Template:M comp disc 2002 ISDA Designated Event
Designated Event is part of the definition of Credit Event Upon Merger in the 2002 ISDA, and doesn't have an equivalent in the 1992 ISDA. These are mainly those merger type activities that no-one has ever managed to conveniently label including consolidation, amalgamation, merger, whole-business transfers, reorganisation, reincorporation or reconstitution, or taking control of the company, or changing its capital structure — including creating indebtedness...
But issuing indebtedness though?
Question is how significant a debt issuance would it have to be to be a material change in the company’s capital structure?
Some learned commentators feel this is rather harsh, especially if you’re in the finance game, where raising indebtedness is part of what you do. Arguably, a bank deposit is a form of indebtedness. Loosely, so is any negative credit exposure. Likewise, the stricture applies to all Credit Support Providers and Specified Entities, so woe betide if one of those is a financial institution too.
The pragmatist might well say, “yeah, that’s how it reads, but no one would ever take the point right?” While it’s bracing to hear such an expression of trust and confidence in the bona fides of one’s fellow merchant in the markets, just “trusting one other” is not really the vibe of the international derivatives documentation community, and in any case if no one needs this clause, why write it in?
All or substantially all is a modifier calculated to snooker that smart Alec who, for example, sells his entire business barring a single chair, to avoid breaching a covenant preventing him from disposing of “all of the business”. This is not the behaviour of a good egg and the better question to ask yourself is why you did business with him in the first place.
In any case, your qualifier leads only to a different kind of uncertainty: what counts as “substantial”? Discussions on the in-any-case tedious topic of Credit Event Upon Merger and Merger Without Assumption tend quickly to go this way. The countless learned articles and client briefing notes on the topic (let me Google that for you) will tell you that the benefit of this kind of drafting accrues mainly to those in the legal profession, but even then only through their very fear and loathing of the notion.
Template:M sa 2002 ISDA Designated Event
- ↑ And no, “Designated Event” does not count as a convenient descriptive label.