Home About Lawyers Offices Practices Media Center Publications Careers

Financial Markets Update

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.

Permission is granted to make and redistribute, without charge, copies of this entire document provided that such copies are complete and unaltered and identify Orrick as the author. All other rights reserved.

To ensure future delivery of Orrick communications, please add [email protected] to your safe sender list or address book.

You are receiving this communication because we believe you have an existing business relationship with Orrick or have previously indicated your desire to receive such communications. You may unsubscribe from future messages by adjusting your subscription preferences or be removed from all mailing lists by e-mailing [email protected].

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

This publication is designed to provide Orrick clients and contacts with information they can use to more effectively manage their businesses and access Orrick's resources. The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who authored it are rendering legal or other professional advice or opinions on specific facts or matters. Orrick assumes no liability in connection with the use of this publication.

Attorney advertising. As required by New York law, we hereby advise you that prior results do not guarantee a similar outcome. 2010 Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, NY, 10103-0001,