2002 Isda Master Agreement Change of Control

The authors of the 2002 Framework Agreement completely revised and reconsidered the calculation of payments for early terminations, i.e. damages. The so-called first and second methods as well as market quotation and market loss have been abolished and replaced by the “closing amount”. These changes should lead to more speed, efficiency and (hopefully) objectivity in calculating payments for early terminations. Although the 1992 Agreement provided for the imposition of interest on non-payment of amounts due before and after denunciation, the 2002 Agreement considered that these brief provisions were insufficient. The new document contains detailed and comprehensive provisions on when interest is payable on overdue payments and early termination amounts and how such interest is calculated. The wording of the new credit event in the merger goes far beyond the provision of the 1992 agreement. In particular, the new agreement deals with many indirect changes in control or significant changes in capital structures, even if there has been no change in ownership that was not previously relevant. The elimination of the first method should not be a problem.

In fact, the parties had generally stopped using it before the ink in the 1992 agreement was dry. Banking regulators have effectively killed the choice of the First Method by banning its use by banks. Default under the specified transaction provision provides that it is a default event under the agreement if a party (or its credit support provider or specified entity) defaults on a “specified transaction” with its counterparty (or the credit support provider or specified entity of the counterparty). Under the 1992 Agreement, a specified transaction was defined only to include the most common OTC derivatives, such as swaps between the parties, which were not governed by the Party`s 1992 agreement. The authors cleaned up the proposed tax returns for beneficiaries, which are offered in the form of a calendar. Firstly, the tax representation of BRITISH beneficiaries was removed from the 1992 list because it is obsolete. Second, new tax returns from U.S. beneficiaries have been added. While such representations have been required since the change in U.S.

tax law, many foreign counterparties have objected to the new wording. Hopefully, the inclusion of forms in the new calendar will speed up their use. Demanding merchants and end users who intend to adopt the new agreement can expect months of internal meetings once the content is digested. Changes have been made that affect not only legal matters, but also business, credit and operational matters. Unfortunately, literally every change to the agreement has a meaning that must be understood and weighed before using the contract. If past experience is a guide, it can take six months to a year before the agreement is used consistently. Although the architecture of the 1992 agreement has been retained, literally all the essential provisions have been rewritten to reflect all the various additions, revisions and clarifications. The 2002 document also appreciated, increasing from 18 to 27 pages with detailed provisions at a single distance. The International Swaps and Derivatives Association issued a new framework agreement in December to replace the 1992 agreement. The new agreement represents the work of the ISDA Documentation Committee, with more than 100 different members reviewing previous versions and making comments. The trade association has already obtained compensation reports on the new agreement in 36 different jurisdictions.

Paragraph 5(b)(v) of the 1992 Agreement and paragraph 5(b)(vi) of the 2002 Agreement allow the Parties to participate in other termination events provided for in Part 1(g) and Part 1(g), respectively. (h) the annex or in a confirmation between them. Any affected parties or parties for such additional termination events will also be identified at these locations. The parties have resisted the addition of such transactions in the past. The parties were concerned that an unintentional or technical failure to supply in any of these transactions could trigger a default under the 1992 Agreement. Depots, in particular, were vulnerable to such breakdowns and delivery failures. The 2002 agreement helps to improve this outcome by requiring that there be a “liquidation, acceleration or premature termination of all transactions in progress under the documents applicable to that specified transaction.” In other words, for a default event to exist under the 2002 agreement, the documentation applicable to the specified transaction in question would have to be terminated prematurely. * A “substantial change” in a party`s capital structure due to certain changes is revolutionary, such as the complete revision of the calculation of early termination indemnities. Other changes reflect the codification of market practices, such as the addition of a contractual set-off clause. B to the text of the 2002 Agreement itself. Finally, many amendments have been made to clarify and simplify the agreement, such as.B.

the amendments to the provision on the clearing of payments. This discussion focuses on changes that could be a major concern for a portion that falls within the new document. * A direct or indirect change in beneficial ownership of the 2002 agreement significantly expands the credit event at the end of the merger. For a credit event to occur during the merger, the affected party must be “much weaker” after one of the three “designated events” has occurred. The authors again chose not to define what is meant by the term “materially weaker”. Presumably, this would be interpreted as meaning that if the party concerned had been `substantially weaker` before the conclusion of the framework agreement, the unaffected party would not have concluded the agreement. The new agreement significantly expands what constitutes a specified transaction. New forms of transactions added to the definition include credit derivatives, repurchase agreements, buy/sell transactions, securities lending, weather derivatives, and securities and commodity futures.

This expansion takes over many capital market-type transactions, such as repo, which previously had no impact on the deal. This meeting will focus on the key issues that companies generally negotiate in their timetable for the 2002 agreement. It should be noted that ISDA 2002 includes a case of force majeure, using language that has already been agreed and widely incorporated into the 1992 ISDA calendar prior to its publication. .