Qualifying guarantee and qualifying affiliate guarantee

Indra Rajaratnam

This chapter considers the types of guarantee obligations of a reference entity that can qualify as an Obligation, or a Deliverable Obligation. The chapter begins with a brief overview of a common guarantee structure and the terminology within the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b) that would be relevant to guarantees. The chapter explores the various guarantee descriptions, namely a “qualifying guarantee” and a “qualifying affiliate guarantee”, and describes the two-step determination process relevant to a qualifying guarantee. The first step of the determination process involves an assessment as to whether a guarantee complies with certain conditions, while the second step of the determination process requires the elimination of certain non-qualifying guarantees. The additional condition that needs to be met for a guarantee to form a qualifying affiliate guarantee is also examined. In the concluding section, the implications of a guarantee failing to constitute a “relevant guarantee”, and the principles applicable to the calculation of the outstanding principal balance of a

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