2014 ISDA Credit Derivatives Definitions
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Section 3.32 in a Nutshell™
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Full text of Section 3.32
|Section 3.32. Mod Mod R
- (a) If (i) “Physical Settlement” is specified to be the Settlement Method in the related Confirmation (or is applicable as the Fallback Settlement Method in accordance with Section 6.1 (Auction Settlement)), (ii) “Mod Mod R” is specified as applicable in the related Confirmation and (iii) Restructuring is the only Credit Event specified in a Credit Event Notice delivered by Buyer, then unless the Deliverable Obligation is a Prior Deliverable Obligation and Asset Package Delivery applies due to a Governmental Intervention, a Deliverable Obligation may only be specified (or deemed specified pursuant to Section 9.8(i) (Alternative Procedures Relating to Loans Not Delivered)) in the Notice of Physical Settlement or in any NOPS Amendment Notice, as applicable, if it (A) is a Conditionally Transferable Obligation and (B) has a final maturity date not later than the applicable Modified Restructuring Maturity Limitation Date, in each case, as of both the NOPS Effective Date and the Delivery Date. Notwithstanding the foregoing, for purposes of Section 3.32(a), in the case of a Restructured Bond or Loan with a final maturity date on or prior to the 10year Limitation Date, the final maturity date of such Bond or Loan shall be deemed to be the earlier of such final maturity date or the final maturity date of such Bond or Loan immediately prior to the relevant Restructuring.
- (b) “Conditionally Transferable Obligation” means a Deliverable Obligation that is either Transferable, in the case of Bonds, or capable of being assigned or novated to all Modified Eligible Transferees without the consent of any person being required, in the case of any Deliverable Obligation other than Bonds, in each case, as of both the NOPS Effective Date and the Delivery Date, provided, however, that a Deliverable Obligation other than Bonds will be a Conditionally Transferable Obligation notwithstanding that consent of the Reference Entity or the guarantor, if any, of a Deliverable Obligation other than Bonds (or the consent of the relevant obligor if the Reference Entity is guaranteeing such Deliverable Obligation) or any agent is required for such novation, assignment or transfer so long as the terms of such Deliverable Obligation provide that such consent may not be unreasonably withheld or delayed. Any requirement that notification of novation, assignment or transfer of a Deliverable Obligation be provided to a trustee, fiscal agent, administrative agent, clearing agent or paying agent for a Deliverable Obligation shall not be considered to be a requirement for consent for purposes of Section 3.32(b).
- (c) If Section 3.32(a) applies and the Deliverable Obligation specified in the Notice of Physical Settlement (or in any NOPS Amendment Notice, as applicable) is a Conditionally Transferable Obligation with respect to which consent is required to novate, assign or transfer and the requisite consent is refused (whether or not a reason is given for such refusal and, where a reason is given for such refusal, regardless of that reason), or is not received by the Physical Settlement Date (in which case it shall be deemed to have been refused), Buyer shall promptly notify Seller of such refusal (or deemed refusal) and:
- (i) Section 11.2(c)(iv) (Additional Representations and Agreements for Physical Settlement) shall apply with respect to Seller as the designator, provided, however, that the designee need not be an Affiliate of Seller; and
- (ii) if Seller does not designate a third party that takes Delivery on or prior to the Loan Alternative Procedure Start Date, then Section 9.8 (Alternative Procedures Relating to Loans Not Delivered) shall apply.
- (d) “Modified Restructuring Maturity Limitation Date” means, with respect to a Deliverable Obligation, the Limitation Date occurring on or immediately following the Scheduled Termination Date.
- Subject to the foregoing, if the Scheduled Termination Date is later than the 10-year Limitation Date, the Modified Restructuring Maturity Limitation Date will be the Scheduled Termination Date.
- (e) “Modified Eligible Transferee” means any bank, financial institution or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities and other financial assets.
Content and comparisons
Mod R — Modified Restructuring — is most easily compared with Restructuring, and Mod Mod R — which stands for Modified Modified Restructuring — and tells you all you need to know about the tortured genealogy of the credit derivatives product.
3.32 There are times where the JC’s patience for the infinite, pernickety, paranoid, wilful attention to unnecessary detail that ISDA’s crack drafting squad™ brings to its task runs out, and this is one such a place. Our nutshell version is as faithful a replication of this semantic superstructure as we can bring ourselves to recreate, but is still far more information than any fair-minded merchant should need, and is certainly more than anyone wants.
If you are physically settling a CDS because of only a Restructuring — if any other Credit Event happens, for heaven’s sake use that and don’t bother with this nonsense — then, bar one very limited circumstance which we will get to — then you can only deliver a Deliverable Obligation that is a Conditionally Transferable Obligation with a final maturity date no later than the — oh, God, here we go — Modified Restructuring Maturity Limitation Date. And then it carries on, diving head first into deep pool of conditonal detail that was drained for the winter.
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