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2014 ISDA Credit Derivatives Definitions
A Jolly Contrarian owner’s manual™
2.2(a) in a Nutshell™
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| 2.2(a) in all its glory
- 2.2(a) “Successor” means, subject to Section 2.2(c), the entity or entities, if any, determined as follows:
- (i) subject to Section 2.2(a)(vii), if one entity succeeds, either directly or as a provider of a Relevant Guarantee, to seventy-five per cent or more of the Relevant Obligations of the Reference Entity, that entity will be the sole Successor for the entire Credit Derivative Transaction;
- (ii) if only one entity succeeds, either directly or as a provider of a Relevant Guarantee, to more than twenty-five per cent (but less than seventy-five per cent) of the Relevant Obligations of the Reference Entity, and not more than twenty-five per cent of the Relevant Obligations of the Reference Entity remain with the Reference Entity, the entity that succeeds to more than twenty-five per cent of the Relevant Obligations will be the sole Successor for the entire Credit Derivative Transaction;
- (iii) if more than one entity each succeeds, either directly or as a provider of a Relevant Guarantee, to more than twenty-five per cent of the Relevant Obligations of the Reference Entity, and not more than twenty-five per cent of the Relevant Obligations of the Reference Entity remain with the Reference Entity, the entities that succeed to more than twenty-five per cent of the Relevant Obligations will each be a Successor for a New Credit Derivative Transaction determined in accordance with Section 2.2(n);
- (iv) if one or more entities each succeeds, either directly or as a provider of a Relevant Guarantee, to more than twenty-five per cent of the Relevant Obligations of the Reference Entity, and more than twenty-five per cent of the Relevant Obligations of the Reference Entity remain with the Reference Entity, each such entity and the Reference Entity will each be a Successor for a New Credit Derivative Transaction determined in accordance with Section 2.2(n);
- (v) if one or more entities succeed, either directly or as a provider of a Relevant Guarantee, to a portion of the Relevant Obligations of the Reference Entity , but no entity succeeds to more than twenty-five per cent of the Relevant Obligations of the Reference Entity and the Reference Entity continues to exist, there will be no Successor and the Reference Entity and the Credit Derivative Transaction will not be changed in any way as a result of such succession;
- (vi) if one or more entities succeed, either directly or as a provider of a Relevant Guarantee, to a portion of the Relevant Obligations of the Reference Entity , but no entity succeeds to more than twenty-five per cent of the Relevant Obligations of the Reference Entity and the Reference Entity ceases to exist, the entity which succeeds to the greatest percentage of Relevant Obligations will be the Successor (provided that if two or more entities succeed to an equal percentage of Relevant Obligations, each such entity will be a Successor for a New Credit Derivative Transaction determined in accordance with Section 2.2(n)); and
- (vii) in respect of a Reference Entity which is not a Sovereign, if one entity assumes all of the obligations (including at least one Relevant Obligation) of the Reference Entity, and at the time of the determination either (A) the Reference Entity has ceased to exist, or (B) the Reference Entity is in the process of being dissolved (howsoever described) and the Reference Entity has not issued or incurred any Borrowed Money obligation at any time since the legally effective date of the assumption, such entity (the “Universal Successor”) will be the sole Successor for the entire Credit Derivative Transaction.
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Resources and Navigation
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Overview
You really will want to see the Nutshell™ version here, as ISDA’s crack drafting squad™ disappears down the rabbit hole of predicting all the manifest ways the wizards of M&A — and Bank recovery and resolution for that matter —can contrive to make one Reference Entity — the one in your Confirmation — turn into one or more other ones.
Summary
Template:M summ Credit Derivatives 2.2(a)
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- The JC’s famous Nutshell™ summary of this clause
One way of digesting all of this is as follows, which we offer disclaimed of all responsibility:
You may have questions. We have questions. The options don’t seem to scan, to use a term from poetry.
75+% Successors
If there is one successor to three-quarters or more of the Reference Obligations, logically there can’t be any succeeding entities accounting for more than 25%, since there aren’t that many Reference Obligations left. and if the Reference Entity in still in existence, it is a shallow husk of the entity it was: it cannot have a quarter of its old Reference Obligations for the same reason.
25+% Successors
See also
References
