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Credit Support Document - ISDA Provision: Difference between revisions
Credit Support Document - ISDA Provision (view source)
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Note that a {{tag|CSA}} should '''not''' be treated as a {{isdaprov|Credit Support Document}}, as it is in fact a {{isdaprov|Transaction}} under the {{isdama}}. | Note that a {{tag|CSA}} should '''not''' be treated as a {{isdaprov|Credit Support Document}}, as it is in fact a {{isdaprov|Transaction}} under the {{isdama}}. | ||
Note also the pitfalls of providing [[Guarantee]]s with respect to individual {{isdaprov|Transaction}}s under an {{isdama}}. | Note also the pitfalls of providing [[Guarantee]]s with respect to individual {{isdaprov|Transaction}}s under an {{isdama}}. It doesn't work. [[Guarantee|Here's why]]. | ||
==[[Guarantees]] under the {{isdama}} and why a Transaction-Specific guarantee is a bad idea== | |||
Should a client request a transaction-specific parental guarantee under an {{isdama}} instead of the usual “all obligations” guarantee of all obligations under the {{isdama}} and all transactions under it, escalate immediately. | |||
We should *never* agree to the guarantee of individual {{isdaprov|Transaction}}s (or accepting [[letter of credit|Letters of Credit]] with respect to individual transactions) under an {{isdama}}. The reason relates to the way {{isdama}}s are closed out inder Section {{isdaprov|6(e)}}: | |||
{{box|{{isdaq|6(e)(i)|2002}}}} | |||
*On a close-out, each {{isdaprov|Transaction}} is terminated, the individual close-out amounts are determined, they’re aggregated up to a single net sum (i.e. negative exposures are netted off against positive ones) and the single Early Termination Payment is payable under {{isdaprov|6(e)}} ({{isdaprov|Payments on Early Termination}}) of the {{isdama}}. | |||
*That is to say, it is *not* payable under the {{isdaprov|Transaction}} at all - it's payable under the {{isdama}} itself. | |||
*Therefore, if the guarantee relates to the single {{isdaprov|Transaction}} only, at precisely the point you wish to rely on it (i.e., upon the party’s default), it will vanish. Same goes for Letters of Credit. | |||
{{isdaanatomy}} | |||
{{isdaanatomy}} | {{isdaanatomy}} | ||