Energy Sector dinner: Closing out on close-outs

Tuesday, August 20, 2024

6:00 pm - 9:00 pm CT

We had a dinner and discussion with DLA Piper's Energy Sector on Tuesday, August 20.

Termination of over-the-counter derivatives governed by an ISDA Master Agreement can be a harrowing experience. The ISDA Master Agreement is highly technical. Failure to follow its precise terms could result in an ineffective designation of an early termination date. Worse yet, a failed attempt at early termination could turn the tables on a party that has suspended its payment or performance obligations in reliance on an effective default notice or designation of an early termination date, giving the other party an early termination right at its side of the market. Furthermore, the onset of remote work has magnified the difficulty of providing effective default, termination and valuation notices, which cannot be delivered by email or other electronic means under standard ISDA methodology. To address these challenges, ISDA published a form of amendment to its notices provisions and currently is developing the ISDA Notices Hub to facilitate simultaneous online delivery and receipt of notices.

This discussion focused on:

1. Requirements for terminating transactions or suspending payments or deliveries following the occurrence of an Event of Default or Termination Event
2. Methods for calculating the amount payable upon early termination
3. Process for delivering default notices, early termination notices and valuation statements
4. What a non-defaulting party should do when a defaulting party failed to provide notice of a change in address, or physical delivery of notice in accordance with the ISDA Schedule is otherwise impossible
5. Whether (and how) decisions might change in a bankruptcy
6. ISDA Notices Hub – timeline, risks and benefits