The Asia Ex-Japan Determinations Committee ("DC") resolved to suspend the settlement of credit derivatives transactions referencing Noble Group Ltd ("Noble"). During the suspension period, parties to a relevant credit derivative transaction are not obliged to, nor are they entitled to, take any action in connection with the settlement of such credit derivative. The DC met to consider two questions concerning the validity of Credit Event Notices related to the possible restructuring of a loan to Noble Group Ltd. Previously, the DC had dismissed a question about the underlying credit event because the DC was "not . . . able to obtain the underlying documentation" necessary to make a determination. In a statement issued after the two additional questions were raised, the DC said that "Settlement Suspension" provisions now apply.
In a recent blog post, ISDA CEO Scott O'Malia discussed several issues that have arisen during the debate about the Noble question. Mr. O'Malia said that the industry Determinations Committees rather than ISDA make "determinations on whether a credit event has occurred." Mr. O'Malia explained that DCs are composed of 10 sell-side and five buy-side market participants, who make the determination in accordance with Credit Derivatives Determinations Committees Rules (the "DC Rules"). Mr. O'Malia also said that the DC Rules require an 80% supermajority vote, but allow the DCs to dismiss a question and provide for credit market participants to trigger a credit derivatives contract bilaterally.
Mr. O'Malia stated that DCs had been put in place in an effort to reduce the "complexity, operational risks, and potential for disputes" that may arise as a result of market participants bilaterally triggering a credit derivatives contract. Mr. O'Malia promised that ISDA will consider feedback from market participants on changes that can be made to "avoid bilateral triggering exercises" in the future.
Commentary / Assia Damianova
The inability of the DC to obtain the underlying documentation with respect to Noble's Borrowing Base Facility has raised the usual, yet unsubstantiated question of whether some members of the DC might be "voting their book." From a legal perspective, the bilateral settlement requests that have followed raised some interesting interpretation issues. For example, (i) whether the (bilaterally served) Credit Event Notices were valid – if the relevant protection buyer cannot provide the underlying documentation, have they satisfied the requirement for "reasonable detail" of the relevant credit event in this case; and (ii) following the DC Credit Event Question Dismissal on August 9, 2017, whether credit event notices can be validly served after the expiry of the 14-day "Post Dismissal Additional Period."
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