partial cash settlement
In a credit derivatives transaction where Physical Settlement applies, the buyer may only deliver such amount of the deliverable obligations specified in the Notice of Physical Settlement. Pursuant to 8.4 (8.3 in the 1999 definitions), if delivery is completed by the Physical Settlement Date (the last day of Physical Settlement Period), Termination Date will occurs and the Transaction completed.
The buyer is however given more time (beyond the Physical Termination Date) under 9.2(c) to make delivery. Where the deliverable obligations are not bonds or loans, the buyer may continue to attempt to deliver up to 5 business days after the physical settlement date. In the case of bonds or loans, the buyer may continue to attempt to deliver after the physical settlement date, subject to the below. Please also note that the difference provision under the 1999 definitions.
There are a few situations where it is possible for the parties to cash settle all or partially, including:
(a) where it is illegal or impossible for the buyer to deliver all or part of the Deliverable Obligations on or before Latest Permissible Physical Settlement Date (see table below) (9.3);
(b) where Consent Required Loans (9.4), Assignable Loans (9.5) or Participation (9.6) could not be delivered on or before the Latest Permissible Physical Settlement Date
(c) buy-in.
In (a) or (b) above, Partial Cash Settlement Terms (9.8) will apply.| 9.3 | 9.4 | 9.5 | 9.6 | |
| Impossibility and Illegality | Consent Required Loans | Assignable Loans | Participation | |
| Specified to be Applicable |  |
Partial Cash Settlement of Consent Required Loans | Partial Cash Settlement of Assignable Loans | Partial Cash Settlement of Participation |
| Affected Reference Obligations | Undeliverable Obligations | Undelivered Loan Obligations | Unassignable Obligations | Undelivered Participation |
| Deliverable Obligations | |
Consent Required Loans | Assignable Loans | Direct Loan Participations |
| Latest Permissible Physical Settlement Date | 30 calendar days after Physical Settlement Date | 15 Business Days after Physical Settlement Date | 15 Business Days after Physical Settlement Date | 15 Business Days after Physical Settlement Date |
Cash Settlement Amount: |
principle balance/Due and Payable Amount/Currency Amount x (Reference Price – Final Price) |
Cash Settlement Date: |
= Termination Date and 3 BDs after calculation of Final Price |
Reference Obligation: |
Affected Reference Obligation |
Reference Price: |
100% |
Valuation Date: |
2 BDs after Latest Permissible Physical Settlement Date |
Valuation Method: |
“Highest” unless <2 Full Quotations If Weighted Average Quotation or Indicative Quotation applies, “Market” |
Quotation Method: |
Bid |
Quotation Amount: |
outstanding principle balance/Due and Payable Amount/Currency Amount |
Minimum Quotation Amount |
Not applicable |
Valuation Time: |
11:00 a.m. in the principal trading market of the Affected Reference Obligations unless specified |
Market Value: |
> 3 Full Quotations, arithmetic, disregarding highest and lowest 3 Full Quotations, remaining after disregarding highest and lowest 2, arithmetic < 2, if Weighted Average Quotation, Weighted Average Quotation if 3 Indicative Quotations, Indicative Quotation after disregarding highest and lowest < 2, if Weighted Average Quotation does not apply, 9.8(k)(ii) |
Quotation |
Full Quotation, Weighted Average Quotation, Indicative Quotation (if applicable) |
Indicative Quotation |
each quotation for amount of the Undeliverable Obligation equal to Quotation Amount (only applicable to 9.3) |
In the above cases, Termination Date of a transaction will occur the earliest of:
(a) completion of delivery;
(b) Cash Settlement Date in the case of 9.3, 9.4, 9.5 or 9.6.
(b) the seller completes a “buy-in” with respect to bonds under 9.9 (subject to the so call “60-business day cap”)
(c) “alternative delivery” under 9.10 has been completed with respect to loans
derivativeslawyer.com
Last updated February 2007
^The above notes are intended to provide only general outlines and, where applicable, 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 (where applicable) in reliance thereof.
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