Novation and early termination

Indra Rajaratnam

28.1 INTRODUCTION

The third discussion topic concentrates on novations and an early termination of a CDS. Section 7 of the relevant Master Agreement provides that the transfer of any interests or obligations under the Master Agreement may only be effected with the prior written consent of the other party. Such consent, however, would not be required where

  1. the transfer relates to any interest payable under the termination provisions of the relevant Master Agreement, or

  2. the relevant transfer is made pursuant to a consolidation, amalgamation or merger of all or substantially all of the assets of a party to another entity.

This chapter begins by exploring the motivations behind the decision of an investor to exit a transaction, and the challenges that can arise when effecting a transfer. The mechanisms for exiting a transaction, and the considerations that need to be taken into account when a transfer consent is requested, or when a party is approached to enter into a transaction, are also discussed. In the final section of the chapter, the terms that are relevant to an early termination provision, which is based on the valuation procedure under the relevant Master

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