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The ISDA 2003 Credit Derivatives Definitions


 

This article does not attempt to be a complete guide but highlights some of the more important changes made in the ISDA 2003 Credit Derivatives Definitions (published by ISDA on 11 February 2003). In relation to the Restructuring Credit Event, the 2003 Credit Derivatives Definitions also consolidate a number of supplements published by the Credit Derivatives Market Practice Committee during 2001. The structure of the 2003 Credit Derivatives Definitions remains unchanged.

We will look at:

2001 Supplements

The 2003 Credit Derivatives Definitions consolidate the provisions of the following supplements:

Restructuring

Parties to a Credit Derivatives Transaction now have the choice of one of four alternative approaches in relation to the Restructuring Credit Event:

Mod R is generally favoured in North America while Mod Mod R, is used more by in the European markets. The main differences between these two approaches are in:

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Mod R:

Mod Mod R:

Please note that:

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Repudiation/Moratorium

The Credit Event has been amended so that the repudiation or imposition of a Moratorium must be declared by an authorised officer (of the relevant Reference Entity or the Government Authority) and the declaration will only constituted a Potential Repudiation/Moratorium. A Repudiation/Moratorium will occur only if a Failure to Pay or a Restructuring occurs with certain periods specified (i.e. before the Repudiation/Moratorium Evaluation Date, cf. Section 4.6(a)).

Not Subordinated Obligation

The old Pari Passu Ranking has been replaced by the new Not Subordinated Obligation. Please see the meaning of “Subordination” in Section 2.19(b)(i)(B). Please note that whether an Obligation is or is not Subordinated is determined as of the Trade Date or the issue date of such Obligation, whichever is the later.

Notice of Physical Settlement

The Notice of Physical Settlement is supposed to be binding but it is still possible to make amendments to some of the information. The Buyer may for example amend the notice before the Physical Settlement Date and correct any errors or inconsistencies in relation to Deliverable Obligations prior to the Delivery Date.

Alternative Settlement

The 2003 Credit Derivatives Definitions introduce two alternative delivery procedures to enable the Buyer to make the delivery:

Please note that the second procedure does not apply where:

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Guarantee Obligations

For discussion relating to changes made in relation to guarantee obligations, please refer to our article on ISDA 2003 Guarantee Supplement. The 2003 Credit Derivatives Definitions will no doubt replace the 1999 Credit Derivatives Definitions over time but perhaps not before more changes or further supplement. The ‘official’ implementation date of the 2003 Credit Derivatives Definitions was agreed to be 20 June 2003. It is however not binding on market participants.

Related ISDA Articles

Please also refer to our other articles in the series:

derivativeslawyer.com

Last updated 14 February 2006

The above notes are intended to highlight issues and provide only general outlines and not intended to be comprehensive nor legal advice. Where applicable, the same should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They shall never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof. If you have any question, please contact us.

The above notes are intended to highlight issues and provide only general outlines and not intended to be comprehensive nor legal advice. Where applicable, the same should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They shall never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof. If you have any question, please contact us.

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