The International Swaps and Derivatives Association published a new framework agreement in December to replace the 1992 agreement. The new agreement is the work of ISDA`s documentation committee, with more than 100 different members reviewing past drafts and making comments. The trade association has already issued compensation notices on the new agreement in 36 different jurisdictions. The abolition 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. The banking authorities have effectively killed the choice of the first method by banning its use by banks. Recently, someone reminded me of the ISDA framework contract, the widely used form of framework contract for non-prescription derivatives transactions. It was last updated in 2002, and after finding a copy of the 2002 version online, I looked at it. The new language of the credit event in the event of mergers goes far beyond the 1992 contractual provision.
In particular, the new agreement incorporates many indirect changes of control or substantial changes in capital structures, even if there has been no change of ownership that were not relevant until now. one or more transactions (each of a “Transaction”) that are or will be governed by this 2002 Framework Agreement, which includes the Schedule (the “Schedule”) and the documents and other confirmatory evidence (a “Confirmation”) exchanged between the parties or that are otherwise effective in confirming or proving such transactions. Although the 1992 agreement provided for the imposition of interest on non-payment of amounts before and after termination, the authors of the 2002 agreement considered that these brief provisions were insufficient. The new document contains detailed and comprehensive provisions on when interest is collected on advance payments and advance termination amounts, as well as how such interest is calculated. The framework contract is quite long and the negotiation process can be laborious, but once a framework contract is signed, the documentation of future transactions between the parties will be reduced to a brief confirmation of the essential terms of the transaction. The 2002 agreement significantly expanded the Credit Event Upon Merger Termination Event Event. For a credit event to occur during the merger, the party involved must be “much weaker” after one in three designated events occurs. Once again, the authors chose not to define what is meant by “materially weaker.” It would probably be interpreted as meaning that if the party concerned had been “much weaker” before the conclusion of the framework agreement, the non-concerned party would not have concluded the agreement. The authors of the 2002 Framework Agreement completely reviewed and rethought the calculation of early termination payments, i.e. damages.
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