The purpose of the LCDS Protocol (the “Protocol”) is to facilitate the amendment of documentation for loan CDS transactions that reference the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement published by ISDA on June 8, 2006 (the “Old LCDS Terms”). The Old LCDS Terms were replaced by the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement published on May 22, 2007 (the “New LCDS Terms”). The amendments effected by the Protocol will update loan CDS transactions documented under the Old LCDS Terms by migrating them to the New LCDS Terms.

The update is in two parts: (1) incorporating the New LCDS Terms in place of the Old LCDS Terms; and (2) adopting the new form of Syndicated Secured Loan Credit Default Swap Physical Settlement Rider published by The Loan Syndications and Trading Association, Inc. as of June 18, 2007.

The Protocol will apply to all transactions that incorporate the Old LCDS Terms, regardless of the date such transaction is entered into (unless the relevant Confirmation contains sufficient language to exclude the effect of the Protocol in accordance with Section 5(b) of the Protocol). The Protocol will also apply to any when-issued loan CDS transaction having a Trade Date prior to May 22, 2007. These transactions are separately included to ensure that if the parties did not expressly state which version of the standard terms would apply, then the New LCDS Terms will apply to that transaction.

Some of the substantive changes between the Old LCDS Terms and the New LCDS Terms that will be effected by the Protocol are as follows:

  • If the LCDX members of CDS IndexCo LLC vote to hold an auction under the LCDS Auction Rules in relation to a Reference Entity and Designated Priority, all single name LCDS transactions governed by the New LCDS Terms that are triggered within a specified time frame will be cash-settled based on a price determined by an auction similar to recent unsecured CDS protocols (an “Auction”). Parties must independently declare a Credit Event and provide Publicly Available Information to be eligible for settlement under the Auction.

  • If an Auction fails or is abandoned, Physical Settlement will apply to LCDS transactions under the revised LSTA Physical Settlement Rider, with an extended period to deliver a Notice of Physical Settlement.

  • Buyer is prohibited from delivering a Notice of Physical Settlement for 21 calendar days after the Event Determination Date. This standstill is intended to ensure that as many transactions as possible are captured by any Auction, since transactions for which a NOPS Fixing Date has occurred prior to the announcement that an Auction will occur are not included in the Auction.

  • If there is a Relevant Secured List with respect to a Reference Entity that is withdrawn by the Secured List Publisher, the Calculation Agent will automatically commence a search for a Substitute Reference Obligation. Under the Old LCDS Terms, such a search began only upon request from either party or the delivery of a Credit Event Notice. This change is expected to streamline the operation of the optional termination provisions (applicable when there is no Relevant Secured List of the Reference Entity for 30 Business Days).

  • The Secured List Publisher is the Polling Agent if there was a Relevant Secured List within the 30 Business Day period prior to the date being tested under the poll.

It should be noted that there is no adherence fee required for ISDA members or non-ISDA members submitting Adherence Letters in connection with the LCDS Protocol.

The LCDS Protocol is open to ISDA members and non-members. The Protocol was originally open between July 24, 2007 and August 24, 2007. This period has been extended until September 14, 2007, in order to maximize the number of adherents to the Protocol.