ISDA®
INTERNATIONAL SWAPS AND
DERIVATIVES ASSOCIATION
NEWS RELEASE
For
Immediate Release Tuesday, February 11, 2003 For
More Information, Please Contact: ISDA
ISDA
PUBLISHES 2003 ISDA CREDIT DERIVATIVES DEFINITIONS “The
2003 ISDA Credit Derivatives Definitions reflect changes in industry dynamics
over the past three years,” said Robert G. Pickel, Executive Director and
Chief Executive Officer of ISDA. “The new provisions address major challenges
that have shaped the course of the credit derivatives business, and represent
extensive input from all sides of this important and burgeoning market.” Key changes represented
in the new Definitions include: A new test for identifying the Successor to a
Reference Entity; Amendments to various Credit Events, including Bankruptcy,
Repudiation/Moratorium and Restructuring; Alternative Procedures for
non-deliverable bonds and loans: Guarantees; and Novation
Provisions. ISDA has contributed in the past to the standardization of the credit derivatives documentation, beginning in 1998 with its publication of the Long-Form Confirmation and in 1999 with the ISDA Credit Derivatives Definitions. More recently, three Supplements to the 1999 Definitions were published in 2001. ISDA
will host a press briefing today at 3:15 p.m. EST during its Understanding
The New ISDA Documentation Conference at The New York Helmsley
Hotel. Major
changes to the 1999 Definitions include: -
A new
test for identifying the Successor to a Reference Entity: The
2003 Definitions offer a new numerical threshold test for identifying a Successor
to a Reference Entity. -
Amendments
to various Credit Events: Several Credit Events were amended in the 2003
Definitions, including Bankruptcy, Repudiation/Moratorium and
Restructuring. In the context of
Sovereign credit default swaps, the Repudiation/Moratorium Credit Event was
amended following discussions among members after the -
Restructuring: The
2003 Definitions offer parties four choices relating to Restructuring: (i) trade without
Restructuring; (ii) trade with “full” Restructuring, with no modification to
the Deliverable Obligations aspect; (iii) trade with “Modified
Restructuring”, as has been market practice in North America since the
publication of the Restructuring Supplement in May 2001; or (iv) trade with
“Modified Modified Restructuring”, which is a new
provision, generally aimed to address issues raised in the European market. -
Alternative
Procedures for when the Bond or Loan specified in the Notice of Physical
Settlement is not delivered: Introduction of a binding notice of Physical
Settlement. Under the 2003
Definitions, the buyer is required to notify the seller of the Deliverable
Obligations it will deliver. The buyer may send to the seller multiple
notices until the Physical Settlement Date, with the last notice being
binding. -
Guarantees: The
2003 Definitions clarify that the Obligations of a Reference Entity can be
its direct obligations, an obligation of a “Downstream Affiliate”, called a
“Qualifying Affiliate Guarantee” or an obligation of a third party guaranteed
by the Reference Entity, called a “Qualifying Guarantee”. This last category of third party guarantees
is only included if the parties specify this in their Confirmation. -
Novation Provisions: A new Article was introduced in the 2003 Definitions
to address the novation or assignment of credit
derivative transactions. A Novation Agreement and a Novation
Confirmation are offered as well to assist parties in documenting and
obtaining the requisite consents to the assignment of such
transactions. Educational Conferences The
2003 Definitions, as well as the 2002 ISDA Master Agreement and the 2002 ISDA
Equity Derivatives Definitions, are available from ISDA’s
web site (www.isda.org). ISDA will publish
User’s Guides for the three documents later this year. Throughout 2003, ISDA
will host comprehensive seminars to educate its members across the globe on
these important documentation updates.
For further information, visit www.isda.org.
About ISDA ISDA
is the global trade association representing leading participants in the
privately negotiated derivatives industry. ISDA was chartered in 1985, and
today has more than 600 member institutions from 46 countries on six
continents. These members include most of the world’s major institutions that
deal in privately negotiated derivatives, as well as many of the businesses,
governmental entities and other end users that rely on over-the-counter
derivatives to manage efficiently the financial market risks inherent in
their core economic activities. Information about ISDA and its activities is
available on the Association’s web site: www.isda.org.
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