Confirmation for documenting contingent credit default swap transactions (February 6, 2007)1
[Headed paper of Party A]
Date:
To:
From:
Re:
[Name and Address or Facsimile Number of Party B]
[Party A]
Credit Derivative Transaction:
Dear ________:
The purpose of this [letter] (this “Confirmation”) is to confirm the terms and conditions
of the Credit Derivative Transaction entered into between us on the Trade Date specified below
(the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to in the ISDA
Master Agreement specified below.
The definitions and provisions contained in the 2003 ISDA Credit Derivatives
Definitions as supplemented by the May 2003 Supplement and the 2005 Matrix Supplement to
the 2003 ISDA Credit Derivatives Definitions (as so supplemented, the “2003 Definitions”), as
published by the International Swaps and Derivatives Association, Inc. (“ISDA®”), are
incorporated into this Confirmation. In the event of any inconsistency between the 2003
Definitions and this Confirmation, this Confirmation will govern.
[This Confirmation supplements, forms a part of, and is subject to, the ISDA Master
Agreement dated as of [date], as amended and supplemented from time to time (the
“Agreement”), between you and us. All provisions contained in the Agreement govern this
Confirmation except as expressly modified below.]2
1
2
This Confirmation template may be used for confirming Credit Derivative Transactions in respect
of which the Floating Rate Payer Calculation Amount is determined as the amount that would be
payable at mid-market on the early termination of a hypothetical derivative transaction. This
Confirmation template has been designed for use with the Credit Derivatives Physical Settlement
Matrix as most recently amended and supplemented as at the Trade Date of the relevant Credit
Derivative Transaction (unless otherwise agreed by the parties) and as published by ISDA on its
website at www.isda.org (or any successor website thereto).
Include if applicable. If the parties have not yet executed, but intend to execute, an ISDA Master
Agreement include, instead of this paragraph, the following: “This Confirmation evidences a
complete and binding agreement between you and us as to the terms of the Transaction to which
this Confirmation relates. In addition, you and we agree to use all reasonable efforts promptly to
negotiate, execute and deliver an agreement in the form of an ISDA Master Agreement, with such
modifications as you and we will in good faith agree. Upon the execution by you and us of such
an agreement, this Confirmation will supplement, form part of, and be subject to that agreement.
All provisions contained in or incorporated by reference in that agreement upon its execution will
govern this Confirmation except as expressly modified below. Until we execute and deliver that
agreement, this Confirmation, together with all other documents referring to an ISDA Master
Agreement (each a “Confirmation”) confirming transactions (each a “Transaction”) entered into
between us (notwithstanding anything to the contrary in a Confirmation), shall supplement, form a
part of, and be subject to, an agreement in the form of the 1992 ISDA Master Agreement
(Multicurrency – Cross Border) if any Confirmation dated prior to the date of this Confirmation
refers to that ISDA Master Agreement and otherwise the 2002 ISDA Master Agreement as if we
Copyright © 2007 by International Swaps and Derivatives Association, Inc.
The terms of the Transaction to which this Confirmation relates are as follows:
1. General Terms:
Transaction Type:
[
]3
Trade Date:
[
]
[Matrix Publication Date:
[
]]4
Effective Date:
[
]
Scheduled Termination Date:
[
]
Floating Rate Payer:
[
] (“Seller”)
Fixed Rate Payer:
[
] (“Buyer”)
Calculation Agent:
[
]
Calculation Agent City:
[
]
Reference Entity:
[
]
[Reference Obligation(s):
[
]
[The obligation(s) identified as follows:
Primary Obligor:
Guarantor:
Maturity:
Coupon:
CUSIP/ISIN:
2.
3
4
[
[
[
[
[
]
]
]
]
]]]
Fixed Payments:
[Fixed Rate Payer Calculation
Amount:
[
]]
[Fixed Rate Payer Period End Date:
[
]]
Fixed Rate Payer Payment Date[s]:
[
[Fixed Rate:
[
]]
[Fixed Rate Day Count Fraction:
[
]]
][, [
], [
] and [
]]
had executed an agreement in such form (but without any Schedule except for the election of
[English Law][the laws of the State of New York] as the governing law and [specify currency] as
the Termination Currency) on the Trade Date of the first such Transaction between us. In the
event of any inconsistency between the provisions of that agreement and this Confirmation, this
Confirmation will prevail for the purpose of this Transaction.”
The parties should include any of the Transaction Types identified in the Credit Derivatives
Physical Settlement Matrix that applies to the Credit Derivative Transaction transacted between
the parties.
Include only if the parties intend to use a version other than the most recent version of the Credit
Derivatives Physical Settlement Matrix.
2
[Fixed Amount[s]:
3.
[
]]
Floating Payments:
Floating Rate Payer Calculation
Amount:
An amount equal to the greater of (a) the sum of
the Mark-to-market Value and the Net Interim
Payment and (b) zero.
The Calculation Agent shall determine the Floating
Rate
Payer
Calculation
Amount
upon
determination of both the Mark-to-market Value
and the Net Interim Payment and shall notify the
parties of such amount.
If the Floating Rate Payer Calculation Amount is
determined to be zero, the date of such
determination shall be the Termination Date of the
Transaction and the parties shall have no further
obligations to each other in respect of the
Transaction.
Mark-to-market Value:
The amount, if any, that would be payable to the
Exposed Party by the Other Party (in which case
the Mark-to-market Value shall be expressed as a
positive number) or to the Other Party by the
Exposed Party (in which case the Mark-to-market
Value shall be expressed as a negative number), in
either case pursuant to Section 6(e)(ii)(2)(A) of the
Reference Agreement, as if (i) the Reference
Derivative were the sole Terminated Transaction as
of the date the Mark-to-market Value is
determined, and (ii) there were no Unpaid
Amounts. Such amount shall be determined in
accordance with the Determination of Mark-tomarket Value provisions below.
Determination of Mark-to-market
Value:
Buyer and Seller shall attempt, in good faith, to
agree on the Mark-to-market Value prior to the
Initial Derivative Valuation Date. If Buyer and
Seller fail to reach agreement prior to the Initial
Derivative Valuation Date, the Calculation Agent
shall attempt to determine the Mark-to-market
Value in accordance with the Derivative Valuation
provisions below.
For the avoidance of doubt, where the Event
Determination Date falls on or after the
Termination Date of the Reference Derivative, the
Mark-to-market Value shall be zero and the Event
Determination Date shall be the date on which the
Mark-to-market Value is determined.
Derivative Valuation:
If the Calculation Agent is required to determine
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the Mark-to-market Value, notwithstanding
anything in the Reference Agreement to the
contrary, it shall do so in the following manner,
acting in accordance with Section 1.14 of the 2003
Definitions:
(a)
The Calculation Agent shall attempt to obtain
Derivative Quotations on the Initial
Derivative Valuation Date from four
Derivative Dealers. If the Calculation Agent
is unable to obtain three or more Derivative
Quotations on the Initial Derivative
Valuation Date, then the Calculation Agent
shall attempt to obtain Derivative Quotations
from four or more Derivative Dealers on each
Business Day thereafter until the earlier of
(x) the fifth (5th) calendar day following the
Initial Derivative Valuation Date and (y) the
Business Day on which the Calculation
Agent obtains three or more Derivative
Quotations.
If more than three Derivative Quotations are
obtained, the Mark-to-market Value will be
the arithmetic mean of the Derivative
Quotations, without regard to the Derivative
Quotations having the highest and lowest
values.
If exactly three Derivative
Quotations are obtained, the Mark-to-market
Value will be the Derivative Quotation
remaining after disregarding the highest and
lowest Derivative Quotations. For these
purposes, if more than one Derivative
Quotation has the same highest value or
lowest value, then one of such Derivative
Quotations shall be disregarded.
(b)
If the Calculation Agent is unable to obtain
three or more Derivative Quotations on the
same Business Day on or prior to the fifth
(5th) calendar day following the Initial
Derivative Valuation Date, then the
Calculation Agent shall attempt to obtain
Derivative Quotations from four Derivative
Dealers on each Business Day thereafter until
the earlier of (x) the tenth (10th) calendar day
following the Initial Derivative Valuation
Date and (y) the Business Day on which the
Calculation Agent obtains two Derivative
Quotations.
If two Derivative Quotations are obtained,
the Mark-to-market Value will be the
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arithmetic mean
Quotations.
(c)
5
6
of
such
Derivative
If the Calculation Agent is unable to obtain at
least two Derivative Quotations on the same
Business Day on or prior to the tenth (10th)
calendar day following the Initial Derivative
Valuation Date, then the Calculation Agent
shall determine the Mark-to-market Value in
good faith.
Reference Derivative:
A hypothetical derivative transaction evidenced by
a confirmation (the “Reference Confirmation”)
having the Reference Derivative Terms identified
in the Exhibit hereto. The Reference Confirmation
is deemed to supplement, form part of and be
subject to a hypothetical single agreement (the
“Reference Agreement”) in the pre-printed form of
the 1992 ISDA Master Agreement (MulticurrencyCross Border) but without any Schedule thereto
except for the elections of (i) the Reference
Derivative Law as the governing law, (ii) the
Reference Derivative Currency as the Termination
Currency and (iii) Second Method and Market
Quotation as applicable.
Exposed Party:
[
]5 (as defined in the Reference Derivative)
Other Party:
[
]6 (as defined in the Reference Derivative)
Net Interim Payment:
The amount (if any) that is equal to the remainder
(which may be expressed as a positive or a
negative number) of (i) the Reference Derivative
Currency Equivalent of the aggregate of all
amounts that would be payable to the Exposed
Party minus (ii) the Reference Derivative Currency
Equivalent of the aggregate of all amounts that
would be payable by the Exposed Party, in each
case on Payment Date(s) (as defined in the
Reference Derivative), if any, occurring during the
Interim Period, assuming such Reference
Derivative were then in effect. If the net amount
would be payable to the Exposed Party, then the
Net Interim Payment shall be expressed as a
positive number. If the net amount would be
Insert the applicable party from the Reference Derivative (e.g. “Floating Rate Payer”). Where
Buyer is entering into the contingent credit default swap transaction to hedge an underlying
position with the Reference Entity on substantially similar terms to the Reference Derivative, this
will generally be the position held by the Buyer in that underlying transaction.
Insert the applicable party from the Reference Derivative (e.g. “Fixed Rate Payer”). Where Buyer
is entering into the contingent credit default swap transaction to hedge an underlying position with
the Reference Entity on substantially similar terms to the Reference Derivative, this will generally
be the position held by the Reference Entity in that underlying transaction.
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payable from the Exposed Party, then the Net
Interim Payment shall be expressed as a negative
number.
Look-back Option:
[Applicable][Not Applicable]7
If “Look-back Option” is specified as
“Applicable”, notwithstanding the foregoing, if the
Event Determination Date occurs during the period
from but excluding the Termination Date of the
Reference Derivative to and including the [fifth]
calendar day following such date, the Net Interim
Payment shall be (i) the Reference Derivative
Currency Equivalent of the amount that would be
payable to the Exposed Party minus (ii) the
Reference Derivative Currency Equivalent of the
amount that would be payable by the Exposed
Party, in each case on the Termination Date of the
Reference Derivative. If the net amount would be
payable to the Exposed Party, then the Net Interim
Payment shall be expressed as a positive number. If
the net amount would be payable from the Exposed
Party, then the Net Interim Payment shall be
expressed as a negative number.
Determination of Net Interim
Payment:
Buyer and Seller shall attempt, in good faith, to
agree on the Net Interim Payment on the day on
which the Mark-to-market Value is determined.
If Buyer and Seller have failed to reach agreement
by close of business on the day on which the Markto-market Value is determined, the Calculation
Agent shall determine the Net Interim Payment,
acting in accordance with Section 1.14 of the 2003
Definitions.
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8
Interim Period:
The period from and including the Deemed Credit
Event Occurrence Date to and including the earlier
of (i) the Termination Date of the Reference
Derivative and (ii) the day on which the Mark-tomarket Value is determined.
[Credit Event(s):
Restructuring: [Applicable][Not Applicable]]8
The Look-back Option should only be included in circumstances where the parties wish to assume
that any payments due on the Termination Date of the Reference Derivative are not made if the
Event Determination Date occurs within [five] calendar days following the Termination Date of
the Reference Derivative. In order for the Look-back Option to be effective, parties should ensure
that the Scheduled Termination Date of the contingent credit default swap transaction extends
[five] calendar days beyond the Termination Date of the Reference Derivative to permit the
delivery of a Credit Event Notice during this period.
Delete if parties wish the application of the Restructuring Credit Event to be determined by the
terms of the relevant Credit Derivatives Physical Settlement Matrix.
6
[Restructuring Maturity Limitation and Fully
Transferable Obligation:
[Applicable]]
[Modified Restructuring Maturity Limitation
and
Conditionally
Transferable
Obligation:
[Applicable]]
[Multiple Holder Obligation:]
[Not Applicable]]
[Additional Provisions for Physically
Settled Default Swaps – Monoline
Insurer as Reference Entity
(January 21, 2005):
4.
Settlement Terms:
Settlement Method:
[5.
[Applicable]]9
Physical Settlement
Notice and Account Details:
Notice and Account Details for Party
A:
Notice and Account Details for Party
B:]
[6.
Offices:
[Seller:]
[
]
[Buyer:]
[
]]
7.
Additional Definitions and Amendments to the 2003 Definitions
(a)
For the purposes of this Transaction only, the following terms have the meanings given
below:
“Deemed Credit Event Occurrence Date” means the earliest of (a) the Event Determination
Date; (b) the earliest date (if any) specified in the Publicly Available Information as the
date of occurrence of the relevant Credit Event; and (c) the date on which the Publicly
Available Information was first made available.
“Derivative Dealer” means a leading dealer in the relevant market for the Reference
Derivative. Each of Buyer and Seller shall select two Derivative Dealers and notify the
9
Include only if Transaction Type is NORTH AMERICAN CORPORATE and the parties intend to
specify the Additional Provisions for Physically Settled Default Swaps – Monoline Insurer as
Reference Entity (January 21, 2005) as Applicable.
7
Calculation Agent of the identity of such Derivative Dealers prior to the Derivative
Valuation Time on the Initial Derivative Valuation Date. If both Buyer and Seller select the
same Derivative Dealer(s) then the Calculation Agent shall select one or more additional
Derivative Dealers so that it has four Derivative Dealers from which to seek Derivative
Quotations.
“Derivative Quotation” means to the extent reasonably practicable, a quotation from a
Derivative Dealer of the Mark-to-market Value of the Reference Derivative as of the
Derivative Valuation Time on a Derivative Valuation Date. The Calculation Agent shall
request that such quotation be the arithmetic mean of (i) the quotation that would be
provided if the Calculation Agent were assumed to be the Exposed Party and (ii) the
quotation that would be provided if the Calculation Agent were assumed to be the Other
Party. For purposes hereof, (x) if the quotation is for an amount that would be paid to the
Exposed Party, then such amount shall be expressed as a positive number and (y) if the
quotation is for an amount that would be paid by the Exposed Party, then such amount shall
be expressed as a negative number. The Calculation Agent shall attempt in good faith to
obtain the Derivative Quotations as of the Derivative Valuation Time on each Derivative
Valuation Date. In obtaining quotations, the Calculation Agent shall request each
Derivative Dealer consider the Calculation Agent a dealer of the highest credit standing
which satisfies all the credit criteria such Derivative Dealer applies generally at the time in
deciding whether to offer or make an extension of credit.
“Derivative Valuation Date” means each day on which the Calculation Agent attempts to
obtain Derivative Quotations.
“Derivative Valuation Time” means approximately 11:00 a.m. in the Calculation Agent
City.
“Initial Derivative Valuation Date” means the fifth (5th) Business Day following the Event
Determination Date.
“Reference Derivative Currency” means the Transaction Currency of the Reference
Derivative as set forth in the Reference Derivative Terms, or, if not so specified, United
States dollar.
“Reference Derivative Currency Equivalent” means, in respect of any amount denominated
in the Reference Derivative Currency, such Reference Derivative Currency amount and, in
respect of any amount denominated in a currency other than the Reference Derivative
Currency (the “Reference Derivative Other Currency”), the amount in the Reference
Derivative Currency determined by the Calculation Agent as being required to purchase
such amount of Reference Derivative Other Currency as at the relevant date of
determination with the Reference Derivative Currency at the rate equal to the spot
exchange rate of the foreign exchange agent (selected as provided below) for the purchase
of such Reference Derivative Other Currency with the Reference Derivative Currency at or
about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date
as would be customary for the determination of such a rate for the purchase of such
Reference Derivative Other Currency for value on the relevant date of determination. The
foreign exchange agent will be, or will be selected by, the Calculation Agent.
8
“Reference Derivative Law” means the Governing Law of the Reference Derivative as set
forth in the Reference Derivative Terms, or, if not so specified, the law of the State of New
York.
“Reference Derivative Terms” means the terms of the Reference Derivative set forth in the
Exhibit hereto.
(b)
For the purposes of Section 2.2(e)(ii) of the 2003 Definitions, the Floating Rate Payer
Calculation Amount shall be divided by the number of Successors as of the day on which
the Floating Rate Payer Calculation Amount is determined in respect of each such New
Credit Derivative Transaction.
9
Please confirm your agreement with the foregoing by executing a copy of this Confirmation and
returning it to us [by facsimile].
Yours sincerely,
[PARTY A]
By: _______________________________
Name:
Title:
Confirmed as of the date first above written:
[PARTY B]
By:
_______________________________
Name:
Title:
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EXHIBIT
Reference Derivative Terms10
10
Insert appropriate standard form annex or a bespoke form of Reference Derivative Terms agreed
by the parties.
11
ANNEX A
Form of Reference Derivative Terms for an Interest Rate Swap
The definitions and provisions contained in the [2006 ISDA Definitions] (the Definitions), as
published by the International Swaps and Derivatives Association, Inc., are incorporated into this
Confirmation. In the event of any inconsistency between the Definitions and this Confirmation,
this Confirmation will govern.
Transaction Currency:
[
]
Governing Law:
[
]
[Notional Amount:]
[
]
Trade Date:
[
]
Effective Date:
[
]
Termination Date:
[
] [, subject to adjustment in accordance
with
the
[Following/Modified
Following/Preceding]
Business
Day
Convention]
Fixed Amounts:
Fixed Rate Payer:
[]
[Fixed Rate Payer Currency [
Amount:]
Fixed Rate Payer Payment
Dates [or Period End Dates, if
Delayed Payment or Early
Payment applies]:
]
[
] [, subject to adjustment in accordance
with
the
[Following/Modified
Following/Preceding]
Business
Day
Convention]
Fixed Amount [or Fixed Rate [
and Fixed Rate Day Count
Fraction]:
]
Floating Amounts:
Floating Rate Payer:
[]
[Floating Rate Payer Currency [
Amount:]
]
Floating Rate Payer Payment [
Dates [or Period End Dates, if with
] [, subject to adjustment in accordance
the
[Following/Modified
12
Delayed Payment or Early Following/Preceding]
Payment applies]:
Convention]
[Floating Rate for
Calculation Period:]
initial [
]
Floating Rate Option:
[
]
Designated Maturity:
[
]
Spread:
[Plus/Minus
Floating Rate
Fraction:
Day
Count [
Business
Day
%] [None]
]
Reset Dates:
[
] [, subject to adjustment in accordance
with
the
[Following/Modified
Following/Preceding]
Business
Day
Convention]
[Rate Cut-off Dates:]
[
[Method of Averaging:]
[Unweighted/Weighted Average]
Compounding:
[Applicable/Inapplicable]
[Compounding Dates:]
[
]
[
]
Count [
]
]
[Discounting:
Discount Rate:
Discount Rate
Fraction:]
Day
[Initial Exchange:
Initial Exchange Date:
Fixed Rate Payer
Exchange Amount:
[
] [, subject to adjustment in accordance
with
the
[Following/Modified
Following/Preceding]
Business
Day
Convention]
Initial [
]
Floating Rate Payer Initial [
Exchange Amount:]
]
[Interim Exchange:
13
Interim Exchange Date:
Fixed Rate Payer
Exchange Amount:
[
] [, subject to adjustment in accordance
with
the
[Following/Modified
Following/Preceding]
Business
Day
Convention]6
Interim [
]
Floating Rate Payer Interim [
Exchange Amount:]
]
[Final Exchange:
Final Exchange Date:
[
] [, subject to adjustment in accordance
with
the
[Following/Modified
Following/Preceding]
Business
Day
Convention
Fixed Rate Payer
Exchange Amount:
Final [
]
Floating Rate Payer
Exchange Amount:]
Final [
]
[Business Days for [first currency]:]
[
]
[Business Days for [second currency]:]
[
]
[Business Day Convention:]
[Following/Modified Following/ Preceding]
14