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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
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Section 6(b)(iv) in a Nutshell™
Use at your own risk, campers!
- 6(b)(iv) Right to Terminate
- (1) Termination Events other than Illegality and Force Majeure Events: If the Termination Event still exists but:―
- (A) Tax Termination Events: a neither party has managed to avoid a Tax Event or Tax Event Upon Merger as contemplated in Section 6(b)(ii) or 6(b)(iii) within 30 days of a Termination Event Notice; or
- (B) Other Termination Events: there is a Credit Event Upon Merger, an Additional Termination Event or a Tax Event Upon Merger where the Burdened Party is not the Affected Party:
- either party (if both are Affected Parties) or the Non-Affected Party (in any other case) may, on not more than 20 days’ notice, designate an Early Termination Date for all Affected Transactions.
- (2) Illegality and Force Majeure Events: If an Illegality or Force Majeure Event still exists when its Waiting Period has expired:―
- (A) Subject to clause (B) below, either party may, on not more than 20 days’ notice, designate an Early Termination Date:
- (I) for all Affected Transactions, or
- (II) for fewer than all Affected Transactions by specifying which Affected Transactions it wishes to terminate, effective no earlier than two Local Business Days following the effective day of its notice, as an Early Termination Date for those designated Affected Transactions only. In this case the other party may, by notice, terminate any of the outstanding Affected Transactions as of the same Early Termination Date.
- (B) Where the Illegality or Force Majeure Event relates to performance under a Credit Support Document, an Affected Party may only designate an Early Termination Date following designation by the other party of an Early Termination Date, for fewer than all Affected Transactions under this Section.
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Full text of Section 6(b)(iv)
- 6(b)(iv) Right to Terminate.
- (1) If:―
- (A) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or
- (B) a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,
- the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there are two Affected Parties, or the Nonaffected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, if the relevant Termination Event is then continuing, by not more than 20 days notice to the other party, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.
- (2) If at any time an Illegality or a Force Majeure Event has occurred and is then continuing and any applicable Waiting Period has expired:―
- (A) Subject to clause (B) below, either party may, by not more than 20 days notice to the other party, designate (I) a day not earlier than the day on which such notice becomes effective as an Early Termination Date in respect of all Affected Transactions or (II) by specifying in that notice the Affected Transactions in respect of which it is designating the relevant day as an Early Termination Date, a day not earlier than two Local Business Days following the day on which such notice becomes effective as an Early Termination Date in respect of less than all Affected Transactions. Upon receipt of a notice designating an Early Termination Date in respect of less than all Affected Transactions, the other party may, by notice to the designating party, if such notice is effective on or before the day so designated, designate that same day as an Early Termination Date in respect of any or all other Affected Transactions.
- (B) An Affected Party (if the Illegality or Force Majeure Event relates to performance by such party or any Credit Support Provider of such party of an obligation to make any payment or delivery under, or to compliance with any other material provision of, the relevant Credit Support Document) will only have the right to designate an Early Termination Date under Section 6(b)(iv)(2)(A) as a result of an Illegality under Section 5(b)(i)(2) or a Force Majeure Event under Section 5(b)(ii)(2) following the prior designation by the other party of an Early Termination Date, pursuant to Section 6(b)(iv)(2)(A), in respect of less than all Affected Transactions.
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Related agreements and comparisons
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Content and comparisons
Oh, this section 6(b)(iv) stuff
Is sure stirring up some ghosts for me.
She said, “There’s one thing you gotta learn
Is not to be afraid of it.”
I said, “No, I like it, I like it, it’s good.”
She said, “You like it now —
But you’ll learn to love it later”
- — Robbie Robertson[1]
One’s right to terminate early following an Illegality or the newly introduced Force Majeure Termination Event get a proper makeover in the 2002 ISDA, but otherwise, the provisions are the same, but for some formal fiddling in the drafting.
Summary
What a beast. If you track it through in Nutshell™ terms, it isn’t as bad as it looks, but you have the ISDA ninja’s gift for over-complication, and ISDA’s crack drafting squad™’s yen for dismal drafting, to thank for this being the trial it is.
To make it easier, we’ve invented some concepts and taken a few liberties:
“Unaffected Transaction”, which saves you all that mucking around saying “Transactions other than those that are, or are deemed, to be Affected Transactions” and so on;
Termination Event Notice: An elegant and self-explanatory alternative to “after an Affected Party gives notice under Section 6(b)(i)”.
We take it as logically true that you can’t give 20 days’ notice of something which you then say will happen in fewer than 20 days. Therefore, there is no need for all this “designate a day not earlier than the day such notice is effective” nonsense.
So with that all out the way, here is how it works. Keep in mind that, unlike Events of Default, Termination Events can arise through no fault of the Affected Party and, therefore, are not always as apocalyptic in consequence. Depending what they are, they may be cured or worked-around, and dented Transactions that can’t be panel-beaten back into shape may be surgically excised, allowing the remainder of the ISDA Master Agreement, and all Unaffected Transactions under it, to carry on as normal. So here goes:
Divide up the types of Termination Event
Tax ones: If a Tax Event or a TEUM[2] where the party merging is the one that suffers the tax, the parties have a month to try to rearrange matters between them, their offices and affiliates to avoid the tax issue. Only once that has failed are you in Termination Event territory. See Section 6(b)(ii) and 6(b)(iii).
Non-Affected Party ones: If it’s a CEUM[3], an ATE or a TEUM where the Non-Affected Party suffers the tax, then if the other guy is a Non-Affected Party, then (whether or not you are) you may designate an Early Termination date for the Affected Transactions.
Illegality and Force Majeure: Here, if you are on a 2002 ISDA, there may be a Waiting Period to sit through, to see whether the difficulty clears. For Force Majeure Event it is eight Local Business Days; for Illegality other than one preventing performance of a Credit Support Document: three Local Business Days. So, sit through it. Why is there exception for Illegality on a Credit Support Document? Because, even though it wasn’t your fault, illegality of a Credit Support Document profoundly changes your credit assessment (in a way that arguably, even a payment or delivery obligation doesn’t), and that is the most fundamental risk you are managing under the ISDA Master Agreement.
See also
Template:M sa 2002 ISDA 6(b)(iv)
References
- ↑ Okay he didn’t say the bit about Section 6(b)(iv)
- ↑ That’s “Tax Event Upon Merger” to the cool kids.
- ↑ That’s “Credit Event Upon Merger” to the cool kids.