Documentation credit issue consultancy

The credit department is key in deciding policy on the many risk related issues that arise regularly in the ISDA Master Agreement and related collateral documents used in the OTC derivatives market.

Such issues in the ISDA Master Agreement include whether additional parties (Specified Entities) should be joined to certain Events of Default; whether Cross Default or cross acceleration should apply to debt default and the tolerance levels (Threshold Amounts) for that; whether Specified Indebtedness (borrowed money) should include OTC derivatives or not; and the scope and trigger levels for Additional Termination Events.

With ISDA collateral documents, when not already dictated by regulation, the credit department focuses upon the types of collateral which are acceptable; whether additional collateral (Independent Amounts) are needed; and the levels of Threshold (unsecured risk exposure) and minimum amounts for collateral transfers.

There are fewer credit decisions needed in repo and securities lending master agreements.

DDL can advise on these issues normally with parties new to the market who seek our help to formulate their credit policy for ISDA documentation in the light of our advice on market practice in general. We have also been used to serve as a liaison link between credit, legal, documentation and trading desks within banks.