Right to Terminate Following Termination Event - 1992 ISDA Provision

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1992 ISDA Master Agreement
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Section 6(b) in a Nutshell™

Use at your own risk, campers!
6(b) Right to Terminate Following Termination Event
6(b)(i) Notice. Upon becoming aware of a Termination Event the Affected Party will promptly give the other party with reasonable details of it and each Affected Transaction.
6(b)(ii) Transfer to Avoid Termination Event
If there is an Illegality or a Tax Event with only one Affected Party or a Tax Event Upon Merger where the Burdened Party is the Affected Party, before designating an Early Termination Date the Affected Party must use all reasonable efforts to transfer, within 20 days of giving notice of the Termination Event, all its rights and obligations under the Affected Transactions to one of its Offices or Affiliates so that the Termination Event ceases to exist.
If it cannot make such a transfer, it will advise the other party within the 20 day period, and the other party may effect such a transfer within 30 days after the original notice of Termination Event.
Any such transfer will require the other party’s prior written consent (which may not be withheld if the other party’s prevailing policies would permit it to enter into transactions on the terms proposed).
6(b)(iii) Two Affected Parties. If there is an Illegality or a Tax Event with two Affected Parties, each must use all reasonable efforts agree within 30 days after the Termination Event Notice to avoid it.
6(b)(iv) Right to Terminate: If the Termination Event still exists but:―
(1) Illegality and Tax Termination Events: neither party has managed to avoid an Illegality, Tax Event or Tax Event Upon Merger as contemplated in Sections 6(b)(ii) or 6(b)(iii) within 30 days of a Termination Event Notice; or
(2) Other Termination Events: there is an Illegality relating to a Credit Support Document, 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.

Full text of Section 6(b)

6(b) Right to Terminate Following Termination Event
6(b)(i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.
6(b)(ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party’s policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.
6(b)(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.
6(b)(iv) Right to Terminate. If: —
(1) 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
(2) an Illegality under Section 5(b)(i)(2), 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,
either party in the case of an Illegality, 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 is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.

Related agreements and comparisons

Related Agreements
Click here for the text of Section 6(b) in the 2002 ISDA
Comparisons
Click to compare this section in the 1992 ISDA and 2002 ISDA.

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Content and comparisons

Template:M comp disc 1992 ISDA 6(b)

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Summary

There is a difference between Termination Events that are:

  • Non-catastrophic: that affect one, some, or just a subset of Transactions under the ISDA Master Agreement — these might be caused by, say, a Tax Event or a local Illegality, but in any weather they are not much about the solvency, creditworthiness or mendacity of your counterparty (and might have nothing to do with your counterparty at all); and
  • Catastrophic: that, by their nature affect — that is, “Affect” — all Transactions. These generally are the bespoke ones your credit department insisted on — or theirs did; they will have something to do with the naughtiness of lack of fibre of your counterparty (or you!), and these function for most respects a lot more like Events of Default.

Thus, in the drafting of ISDA Schedules, CSAs and so on, you will often find laboured reference to Events of Default and/or Termination Events which lead to Early Termination Dates with respect to all outstanding Transactions as some kind of special, hyper-exciting, class of Termination Event.

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See also

Template:M sa 1992 ISDA 6(b)

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References

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