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Not Contingent and Accreting Obligation

One of the Deliverable Obligation Characteristics that can be specified is “Not Contingent”.

If “Not Contingent” is specified, the obligations that can be delivered must have, as of the delivery date, “outstanding principal balance” that may not be reduced as a result of the occurrence or non-occurrence of an event or circumstance.

Section 2.20(b)(i) further provide that a Convertible Obligation, an Exchangeable Obligation and an Accreting Obligation satisfy the “Not Contingent” requirement if the above condition i.e. non-reduction of outstanding principal balance is satisfied. In the case of Convertible Obligation and Exchangeable Obligation, the right to convert or exchange or any right to require the issuer to redeem the obligation must not have been exercised before the delivery date.

In the 2003 Credit Derivatives Definitions, the provisions of new 8.7 (Provisions Applicable to Convertible, Exchangeable and Accreting Obligations) were added to clarify how “outstanding principal balance” is determined in relation to e.g. an Accreting Obligation e.g. a zero-coupon bond which is issued at less than the face value but which redemption amount may increase over time (i.e. accreting). Section 8.7(b)(i) provides that the outstanding principal amount shall include the original issue price as well as the amount that has accreted at maturity.

The above notes are intended to provide only general outlines and should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They should never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof.

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