Re: Credit Derivatives Issue

I guess the issue is clear enough. Unless something to the contrary comes
out of today's London meeting, we can issue a statement in that line.
----- Original Message -----
From: "Robert Pickel" <RPICKEL@isda.org<
To: "ISDA BOARD" <BOARD@isda.org<
Cc: "Kimberly Summe" <KSumme@isda.org<; "Louise Marshall"
<LMarshall@isda.org<
Sent: Monday, October 15, 2001 1:06 PM
Subject: Credit Derivatives Issue

< 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
<