Liquidation/Application of Posted Credit Support (VM) - NY VM CSA Provision

1994 New York law CSA Anatomy™ Go Premium In a Nutshell™ Section 10(c): Template:Nutshell NY CSA 10(c) view template 1994 New York law CSA full text of Section 10(c): Template:ISDA New York Law Credit Support Annex 10(c) view template Related Agreements Click [[10(c) - Template:NotNY CSA Provision|here]] for the text of Section Template:Notnycsaprov in the [[Template:Not NY CSA Anatomy|Template:Not New York law CSA]] There is no equivalent to this provision in either the 1995 CSA or the 2016 VM CSA 1994 New York law CSA Resources: Full wikitext | Nutshell wikitext New York Law | Preamble | 1 (Interpretation) | 2 (Security Interest) | 3 (Credit Support Obligations) | 4 ( Conditions Precedent, Transfer Timing, Calculations and Substitutions) | 5 (Dispute Resolution) | 6 (Holding and Using Posted Collateral (VM)) | 7 (Events of Default) | 8 (Certain Rights and Remedies) | 9 (Representations) | 10 (Expenses) | 11 (Miscellaneous) | 12 (Definitions) | 13 (Elections and Variables) | Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

Note the references here are to the Expenses section (section 11) in the ISDA Master Agreement and not the Expenses paragpraph (Paragraph 10) in the 2016 NY Law VM CSA. Alles klaar, as usual. And “Defaulting Party” is term from the ISDA Master Agreement, not the 2016 NY Law VM CSA — it means the person who has committed a Section 5(a) Event of Default — and is to be contrasted with an “Affected Party”, being a person who has is subject to a Section 5(b) Termination Event.

Termination Events are, in the main, less odious than Events of Default, inviting less of the opprobrium on the head of those who suffer them than Failures to Pay and Bankruptcies. And they are less likely to lead directly and immediately to the total implosion of the Affected Party.

So the interesting question, posed not entirely rhetorically for ISDA’s crack drafting squad™, is precisely when in the absence of an Event of Default and thus a Defaulting Party, one would be enforcing on, and therefore liquidating and applying, Posted Credit Support. Not often. You don’t generally enforce security against a solvent counterparty who can just pay you back.

There is one case: the Additional Termination Event, which is a customised Termination Event added in by the parties. These things — examples are NAV triggers and Key person events — tend to be directly credit-related and apocalyptic in nature than the preprinted Termination Events and thus have more of the characteristics of Events of Default. They are the one time you might be enforcing on pledged collateral (but even in this case it would be unlikely unless the ATE quickly descended into a full-blown Event of Default — which if you were closing out, it could quite likely do — in which case the trick would be to characterise your close out as being predicated on the later Event of Default.

So, in any case if you close out on an ATE, you have to share the enforcement costs, but if it is a full blown Event of Default, you can peg them all on the Defaulting Party.

An odd and probably unintended complexity, it seems to this observer.