Earth to ISDA, Earth to ISDA . . .

I DON’T THINK ISDA did much to salvage its standing with its most recent Greek CDS decisions. But to be honest I felt the Determinations Committee’s unanimous decision not to call a restructuring credit event on March 1 caused less of a stir than I thought it deserved. Maybe that’s because almost everyone expects the CDS trigger to be pulled at some point in the near future, so were less concerned by the DC’s wonky decision-making.

It’s not so much that the DC is a shady group per se, which some media wrote during the course of the week. It’s basically the Street: voting dealers are Bank of America Merrill Lynch, Barclays Capital, BNPP, CS, DB, Goldman Sachs, JP Morgan, Morgan Stanley, SG and UBS. Consultative dealers are Citigroup and RBS, while voting non-dealers are five funds (BlueMountain, Citadel, DE Shaw, Elliott and Pimco). The issue is that meetings are closed and no minutes are released.

As for its most recent call, the issue of whether the mere inclusion of collective action clauses should trigger CDS is pretty clear-cut: it shouldn’t. Of course, you’d have to assume that if Greece invokes the CACs and renders the restructuring involuntary, that will be an obvious trigger event. Although in ISDA World, nothing is a given.

ISDA’s statement on the matter was intended to obfuscate; it was a classic no-communication communication

I must say, though, that I’m foxed by the DC’s unanimity around the question of subordination. Now I’m no lawyer, but as pretty much everyone has been saying for some time, surely the fact that the European Central Bank and individual eurozone central banks have exchanged their Greek government bonds for substitute securities (an offer made to no other holders), will be exempt from the effect of CACs if they’re invoked, and won’t be forced to swallow the 53.5% haircut, represents a clear and flagrant breach of pari passu, which I always thought meant ‘ranking equally’? Tell me it doesn’t, ISDA.

ISDA’S STATEMENT ON the matter was intended to obfuscate; it was a classic no-communication communication. “The EMEA DC,” it said, “unanimously determined that the specific fact pattern referred to [the subordination question] does not satisfy either limb of the definition of Subordination as set out in the ISDA 2003 Credit Derivatives Definitions and therefore a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions”.

First of all, what the hell is a fact pattern, let alone a specific one? And limbs of definitions?

Undaunted by ISDA’s linguistic brutality, I went to the ISDA website to take a look at the 2003 Definitions to check on the wording. You’ll be pleased to know that the 2003 ISDA Credit Derivative Definitions (Electronic documentation pack incorporating the “May 2003 Supplement” and the “July 2009 Supplement”) is available – but you’ve got to pay US$350 for the privilege of accessing it (US$175 for members). Not helpful.

I wasn’t up for paying,so I ploughed on to see if I could get them elsewhere. I was delighted when I managed to get hold of the “2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement and Restructuring Supplement to the 2003 ISDA Credit Derivatives Definitions (published on March 12,July 14, 2009”). For free. But my delight didn’t last long.

RATHER THAN AN intelligible document, this wonder of unintelligibility merely documents the changes to the original 2003 doc, with some wonderful statistics at the end. I found out, for example, that the 2009 supplement included 304 insertions, 188 deletions and 14 moves of text for a total of 520 changes.

And there’s a great colour coding guide. Wording inserted by the July 2009 Supplement is represented in blue underline, deletions are represented in red strikethrough, wording inserted by the May 2003 Supplement is represented in purple underline, while deletions are in green strikethrough. Cosmic.

I did a word-search for ‘subordinated’ and the sole reference to it is below. Before you read it, I advise you to sit down, and have an emergency bottle of vodka close at hand. Or maybe some smelling salts if you’re of a nervous disposition.

“(i) (A) “Not Subordinated” means an obligation that is not Subordinated to (I) the most senior Reference Obligation in priority of payment or (II) if no Reference Obligation is specified in the related Confirmation, any unsubordinated Borrowed Money obligation of the Reference Entity; provided that, if any of the events set forth under Section 2.30(a) has occurred with respect to all of the Reference Obligations or if Section 2.2(d) is applicable with respect to the Reference Obligation (each, in each case, a “Prior Reference Obligation”) and no Substitute Reference Obligation has been identified for any of the Prior Reference Obligations at the time of the determination of whether an obligation satisfies the “Not Subordinated” Obligation Characteristic or Deliverable Obligation Characteristic, as applicable, “Not Subordinated” shall mean an obligation that would not have been Subordinated to the most senior such Prior Reference Obligation in priority of payment. For purposes of determining whether an obligation satisfies the “Not Subordinated” Obligation Characteristic or Deliverable Obligation Characteristic, the ranking in priority of payment of each Reference Obligation or each Prior Reference Obligation, as applicable, shall be determined as of the date as of which the relevant Reference Obligation or Prior Reference Obligation, as applicable, was issued or incurred, and shall not reflect any change to such ranking in priority of payment after such date.”

There you go. Simple. I’d run it through my computer grammar check, but my machine would probably die.