Under the 2003 Definitions, a “Successor” to a Reference Entity was based on the percentage of Relevant Obligations assumed by the Successor following the identification of a "succession event." The 2014 Definitions replace the concept of a succession event with a "steps plan." The Steps Plan assesses individual transfers of debt by one or more entities in the aggregate to determine whether or not a successor needs to be named.
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On August 21, the International Swaps and Derivatives Association (ISDA) published the ISDA 2014 Credit Derivatives Definitions Protocol (the "Protocol").
Similar to the Restructuring Credit Event, a "Governmental Intervention" Credit Event is triggered when a government’s action or announcement results in mandatory reduction in principal and/or interest, a change in the ranking in priority of payment, expropriation, postponement/deferral of a date for payment and other structural changes to indebtedness.
In contrast to the Restructuring Credit Event, a Government Intervention Credit Event can be triggered even absent the deterioration in the creditworthiness of the Reference Entity.
The SROs will be published periodically on the SRO list on the ISDA website.
Market participants should note that (a) if an SRO is removed from the list, the transaction will be deemed to have no Reference Obligation until a new SRO is included in the SRO list and (b) all contracts that reference a Reference Entity not covered by the SRO List will be required to specify a Reference Obligation.
Market participants should note that Financial Reference Entity Terms only applies to Government Intervention or Restructuring, and all other Credit Events with respect to subordinated debt will continue to also trigger senior CDS contracts.
Succession Events The 2014 Definitions include provisions to reduce the creation of "orphaned" CDS following certain restructurings.
In addition, the 2014 Definitions include (a) an exception from the definition of qualifying guarantee for a "permitted transfer" in circumstances where there is a transfer of all or substantially all of the assets of the reference entity to the same single transferee and (b) the inclusion of a new "fixed cap" concept, which is a specified numerical limit on the amount of the reference entity's liability under the underlying guaranteed obligation.
Market participants should note that the benefit of the guarantee must be capable of being delivered along with the underlying obligation and if the guarantee contains a fixed cap, all claims to any amounts subject to the fixed cap must be capable of being delivered together with the delivery of the guarantee.
Financial Reference Entity Terms The 2014 Definitions permit market participants to elect "Financial Reference Entity Terms" with respect to CDS contracts written on financial Reference Entities.