Credit Default Swaps: The Vanilla Essence
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Obligations and deliverable obligations
Foreword
Preface
A credit default swap snapshot
Parties and key players
Documentation and standard trading conventions
Credit risk period, scheduled termination date and termination date
Fixed amounts, floating rate payer calculation amount and initial payment amount
Qualifying guarantee and qualifying affiliate guarantee
Reference obligation
Subordination and the senior non-preferred supplement
Outstanding principal balance and due and payable amount
Obligations and deliverable obligations
Credit event overview
Bankruptcy
Failure to pay
Repudiation/moratorium
Restructuring and redenomination
Governmental intervention and contingent convertible capital instruments
Successor determinations
Publicly available information and eligible information
Notices
Business day terms and timing rules
Event determination date and settlement methods
Auction settlement
Cash settlement
Physical settlement
Physical settlement fallback procedures
Orphaning
Fixed recovery transaction and reference obligation only trade
Novation and early termination
Economic sanctions: compliance challenges
Disclosures and regulations
Conclusion: at the ‘Exit Checkpoint’
Appendix
References
10.1 INTRODUCTION
This chapter sets out the types of obligations that would constitute an Obligation and Deliverable Obligations under the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b). The former defines the scope of obligations that can trigger a credit event, and the latter defines the scope of obligations that would be applicable to settling a transaction. This chapter begins with an overview of the definitions of “Obligation” and “Deliverable Obligation”. Specific rules on how these terms are to be assessed in the context of a “relevant guarantee” and certain types of transaction, including the additional conditions that must be satisfied for an obligation to constitute a Deliverable Obligation for the purposes of a Modified Restructuring (“Mod R”) or Modified Modified Restructuring (“Mod Mod R”) transaction, are explored. The chapter concludes with a brief discussion on the impact of certain additional provisions relating to Obligations and Deliverable Obligations, settlement completion issues of a delivery and the challenge process available to eligible market participants under
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