Template:M detail 2002 ISDA 6(f)

Bespoke wording to capture affiliate set-off

If you are the “live-dangerously” sort who wants to capture cross-affiliate set off, try amending the first line of Section 6(f) to read as follows:

6(f) Set-Off. Any Early Termination Amount amounts, whether or not arising under this Agreement, matured, contingent and irrespective of their currency, place of payment or booking payable to one party or its Affiliates, if it is the Non-defaulting Party or Non-affected Party (the “Payee”) by the other party or its Affiliates, if it is the Non-defaulting Party or Non-affected Party (the “Payer”), ...

From the prose stylist’s point of view this is quite the monstrous contraption. But the “ISDA way” leads us to this outcome.

So what are we trying to say here, and is there a better way of saying it?

Firstly, we are talking only about situations where there is a catastrophic, credit-induced close-out of the whole ISDA. — one that precipitates the total breakdown of the relationship between Party A and Party B.

Secondly, the Innocent Party — the JC made this term up, by the way, but it is useful — is the one who is bringing its own Affiliate rights and liabilities into the frame for set-off. It cares not one whit for the Guilty Party, which is presently smoking hulk straddling the median strip, remember, much less any of its Affiliates (who are most likely similarly indisposed).

So how might we say this, given a fresh piece of paper?

6(f) Following the designation of an Early Termination Date for all Transactions, an Innocent Party may, by notice, set-off any Payables it owes against any Payables the other Party owes the Innocent Party, converting currencies if necessary and estimating unascertained obligations in good faith, but the Innocent Party must account for any difference between its estimate and the amount when it is finally ascertained. In this clause:

Innocent Party means a Non-defaulting Party or a Non-affected Party, as the case may be and, when determining any Payables owed by or to such a party, includes its Affiliates”.
“Payable” means any amount owed by the party in question, whether or not arising under this Agreement, matured or contingent and irrespective of its currency, place of payment or booking.