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Enron Mail |
Sorry for the delay: agree that the bonds are "Not Contingent" but I would
like to see Potts' opinion. Robert Pickel <RPICKEL@isda.org< on 15 Oct 2001 12:06 To: ISDA BOARD <BOARD@isda.org< cc: Kimberly Summe <KSumme@isda.org< Louise Marshall <LMarshall@isda.org< Our Ref: Your Ref: Subject: Credit Derivatives Issue ****************************************************************** This message originated from the Internet. Its originator may or may not be who they claim to be and the information contained in the message and any attachments may or may not be accurate. ****************************************************************** You should be aware that an issue is currently under extensive debate in the credit derivative area resulting from the insolvency of Railtrack in the UK. ISDA has been asked by some participants in the market to make a statement regarding a provision of its Credit Derivatives Definitions. Others are either still considering their position or would prefer that ISDA not issue a statement. Specifically, the discussion relates to the deliverability of convertible bonds of Railtrack. There is no dispute that a Credit Event occurred. What is in dispute is whether the bonds satisfy the definition of "Not Contingent" under the Definitions, which is a characteristic typically required of deliverable obligations. This characteristic requires that the payment or repayment of principal on the bonds not be subject to a contingency. The bonds are convertible into equity of Railtrack at the option of the holder or, in certain limited circumstances, at the option of the trustee for the bondholder. The provision for the trustee to exercise the conversion (sometimes referred to as a "widows and orphans" clause) is a standard clause in bonds issued in England and is intended to protect bondholders who may have inadvertently failed to exercise their conversion right when it would be clearly beneficial economically for them to do so. In the case of Railtrack, conversion would not have been economically beneficial at any time recently, but nevertheless the right of the trustee to convert exists. A draft statement has been prepared for consideration by the Credit Derivatives Market Practice Committee, which I have attached for your review. The statement refers to two documents that are in draft form, the User's Guide to the Definitions (which is scheduled to be published in the next week or two) and a Supplement currently under consideration by the "group of six" subgroup of the Committee. In each of these documents, we suggest that "plain vanilla" convertible bonds should satisfy the "Not Contingent" characteristic and should, therefore, be deliverable. "Plain vanilla" convertible bonds for this purpose include bonds where conversion is at the option of the holder of the trustee. A meeting of a number of dealers based in London (not an ISDA meeting) is scheduled for Tuesday. It is not likely that we will publish anything prior to that meeting. I would appreciate your views on whether we should issue any statement regarding this situation. We are continuing to poll members for their views on whether this type of market statement would be appropriate. We are also discussing with Allen & Overy and with Clifford Chance and Linklaters how we might achieve a legal basis for making the statement. Please share your views with the other addressees of this email, as they are coordinating the views of members. Bob ******************************************************************** This message and any attachments are confidential to the ordinary user of the e-mail address to which it was addressed and may also be privileged. If you are not the addressee you may not read, copy, forward, disclose or use any part of the message or its attachments and if you have received this message in error, please notify the sender immediately by return e-mail and delete it from your system. Internet communications cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, arrive late or contain viruses. The sender therefore does not accept liability for any errors or omissions in the context of this message which arise as a result of Internet transmission. Any opinions contained in this message are those of the author and are not given or endorsed by the HSBC Group company or office through which this message is sent unless otherwise clearly indicated in this message and the authority of the author to so bind the HSBC entity referred to is duly verified. ********************************************************************
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