ISDA Determinations Committee Decides on Ambac "Bankruptcy" Credit Event

On March 26, 2010, the International Swaps and Derivatives Association, Inc. ("ISDA") announced that its Determinations Committee (Americas) had decided that a "Bankruptcy" credit event has occurred with respect to Ambac Assurance Corporation ("Ambac"), a Wisconsin insurer.  This determination was unanimous, as was the vote that a settlement auction be held with respect to Ambac.

As a result of this determination, where parties to a credit default swap ("CDS") under which Ambac is listed as a "Reference Entity" have agreed in their underlying documentation to adhere to the decisions of the ISDA Determinations Committees, a "Credit Event" is deemed to have occurred thereunder on March 24, 2010 and an "Event Determination Date" is deemed to have occurred thereunder on March 25, 2010.  Where both parties to a CDS have not agreed to adhere to the decisions of the ISDA Determinations Committees, it is possible that the parties may dispute that a Credit Event has occurred.

Ambac itself provides financial guarantee insurance policies for public and structured finance obligations.  It also serves as a "credit support provider" for certain affiliates that are parties to derivatives transactions.  The ISDA Determinations Committee decision does not necessarily mean that a "Bankruptcy" Event of Default has occurred under an ISDA Master Agreement with an affiliate of Ambac or under which Ambac has provided an insurance policy.  However, under certain arrangements, a party may have to deliver collateral or take other remedial steps following Ambac's bankruptcy.  Documents should be examined on a case-by-case basis to determine whether a collateralization, termination or default event has occurred and whether a party should, or is entitled to, take any actions.  Moreover, a party's ability to effect terminations or other remedies against Ambac (or possibly some of its affiliates) has been restricted by court order and, therefore, care should be exercised by any party considering such action.

If you have any questions regarding the content of this Client Alert or require assistance in reviewing any documents you may have related to Ambac or its affiliated entities, please contact Al Sawyers at 212-506-5041, Thomas Mitchell at 415-773-5732 or Nikiforos Mathews at 212-506-5257.