2014 ISDA Credit Derivatives Definitions
A Jolly Contrarian owner’s manual™
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Section 3.31 in a Nutshell™
Use at your own risk, campers!
Full text of Section 3.31
. 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 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 such Deliverable Obligation (A) is a Fully Transferable Obligation and (B) has a final maturity date not later than the applicable Restructuring Maturity Limitation Date, in each case, as of both the NOPS Effective Date and the Delivery Date.
- (b) “Fully Transferable Obligation” means a Deliverable Obligation that is either Transferable, in the case of Bonds, or capable of being assigned or novated to all 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. 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 3.31.
- (c) “Restructuring Maturity Limitation Date” means, with respect to a Deliverable Obligation, the Limitation Date occurring on or immediately following the Scheduled Termination Date . Notwithstanding the foregoing, if the final maturity date of the Restructured Bond or Loan with the latest final maturity date of any Restructured Bond or Loan occurs prior to the 2.5-year Limitation Date (such Restructured Bond or Loan, a “Latest Maturity Restructured Bond or Loan”) and the Scheduled Termination Date occurs prior to the final maturity date of such Latest Maturity Restructured Bond or Loan, then the Restructuring Maturity Limitation Date will be the final maturity date of such Latest Maturity Restructured Bond or Loan.
- (d) “Eligible Transferee” means:
- (i) Any
- (A) bank or other financial institution;
- (B) insurance or reinsurance company;
- (C) mutual fund, unit trust or similar collective investment vehicle (other than an entity described in Section 3.31(d)(iii)(A)); and
- (D) registered or licensed broker or dealer (other than a natural person or proprietorship), provided, however, in each case that such entity has total assets of at least USD 500,000,000;
- (ii) an Affiliate of an entity specified in Section 3.31(d)(i);
- (iii) each of a corporation, partnership, proprietorship, organization, trust or other entity:
- (A) that is an investment vehicle (including, without limitation, any hedge fund, issuer of collateralized debt obligations, commercial paper conduit or other special purpose vehicle) that (I) has total assets of at least USD 100,000,000 or (II) is one of a group of investment vehicles under common control or management having, in aggregate, total assets of at least USD 100,000,000;
- (B) that has total assets of at least USD 500,000,000; or
- (C) the obligations of which under an agreement, contract or transaction are guaranteed or otherwise supported by a letter of credit or keepwell, support or other agreement by an entity described in Sections 3.31(d)(i), (ii), (iii)(B) or (iv ); or
- (A) any Sovereign; or
- (B) any entity or organization established by treaty or other arrangement between two or more Sovereigns including, without limiting the foregoing, the International Monetary Fund, European Central Bank, International Bank for Reconstruction and Development and European Bank for Reconstruction and Development.
All references in Section 3.31
(d) to USD include equivalent amounts in other currencies, as determined by the Calculation Agent.
Content and comparisons
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Imagine, just for a moment, being part of ISDA’s crack drafting squad™ credit default detachment when it found itself so deep down a rabbit hole — so deep in the schtuck — that it was dealing with contingencies and variables are arcane and arbitrary as these ones. It is not so much a rabbit hole as a mineshaft. This would have given the poor fellow with the broken leg stuck down the crevasse in Touching The Void hope. And the only comfort — and Prophet on a Bike, it’s a cold one — is that things only get worse in the paragraph that follows, Para 3.32. And then you get to go and play in the definitions specially devised for these rearranged Restructuring variations
So what is going on here?
Well, these are codified reactions to earlier iterations of the Restructuring definition in the 2003 Credit Derivatives Definitions that, on first contact with reality during the global financial crisis, were found not to work.
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