2007 LCDS Protocol

  1. Traditional Protocols
  2. 2007 LCDS Protocol

The purpose of the LCDS Protocol (the “Protocol”) is to facilitate the amendment of documentation for loan CDS transactions that reference the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement published by ISDA on June 8, 2006 (the “Old LCDS Terms”). The Old LCDS Terms were replaced by the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement published on May 22, 2007 (the “New LCDS Terms”). The amendments effected by the Protocol will update loan CDS transactions documented under the Old LCDS Terms by migrating them to the New LCDS Terms.

The update is in two parts: (1) incorporating the New LCDS Terms in place of the Old LCDS Terms; and (2) adopting the new form of Syndicated Secured Loan Credit Default Swap Physical Settlement Rider published by The Loan Syndications and Trading Association, Inc. as of June 18, 2007.

The Protocol will apply to all transactions that incorporate the Old LCDS Terms, regardless of the date such transaction is entered into (unless the relevant Confirmation contains sufficient language to exclude the effect of the Protocol in accordance with Section 5(b) of the Protocol). The Protocol will also apply to any when-issued loan CDS transaction having a Trade Date prior to May 22, 2007. These transactions are separately included to ensure that if the parties did not expressly state which version of the standard terms would apply, then the New LCDS Terms will apply to that transaction.

Some of the substantive changes between the Old LCDS Terms and the New LCDS Terms that will be effected by the Protocol are as follows:

  • If the LCDX members of CDS IndexCo LLC vote to hold an auction under the LCDS Auction Rules in relation to a Reference Entity and Designated Priority, all single name LCDS transactions governed by the New LCDS Terms that are triggered within a specified time frame will be cash-settled based on a price determined by an auction similar to recent unsecured CDS protocols (an “Auction”). Parties must independently declare a Credit Event and provide Publicly Available Information to be eligible for settlement under the Auction.

  • If an Auction fails or is abandoned, Physical Settlement will apply to LCDS transactions under the revised LSTA Physical Settlement Rider, with an extended period to deliver a Notice of Physical Settlement.

  • Buyer is prohibited from delivering a Notice of Physical Settlement for 21 calendar days after the Event Determination Date. This standstill is intended to ensure that as many transactions as possible are captured by any Auction, since transactions for which a NOPS Fixing Date has occurred prior to the announcement that an Auction will occur are not included in the Auction.

  • If there is a Relevant Secured List with respect to a Reference Entity that is withdrawn by the Secured List Publisher, the Calculation Agent will automatically commence a search for a Substitute Reference Obligation. Under the Old LCDS Terms, such a search began only upon request from either party or the delivery of a Credit Event Notice. This change is expected to streamline the operation of the optional termination provisions (applicable when there is no Relevant Secured List of the Reference Entity for 30 Business Days).

  • The Secured List Publisher is the Polling Agent if there was a Relevant Secured List within the 30 Business Day period prior to the date being tested under the poll.

It should be noted that there is no adherence fee required for ISDA members or non-ISDA members submitting Adherence Letters in connection with the LCDS Protocol.

The LCDS Protocol is open to ISDA members and non-members. The Protocol was originally open between July 24, 2007 and August 24, 2007. This period has been extended until September 14, 2007, in order to maximize the number of adherents to the Protocol.

PLEASE NOTE: THIS PROTOCOL IS CLOSED.
The following documents must be submitted via email to the ISDA office in New York in order to adhere to the LCDS Protocol:

  • One signed copy of the Adherence Letter, providing information on the contact person at the Adhering Party.
  • One conformed copy of the Adherence Letter. A conformed copy is an exact copy of the signed letter with the name of the person signing the letter typed on the signature line. A signature should not appear on the conformed copy of the letter.

ISDA will only accept email delivery of Adherence Letters. An Adhering Party is not required to send original Adherence Letters to the ISDA offices.

Please submit all Adherence Letters via email to lcdsprotocol@isda.org. It is critical that both a scanned, signed Adherence Letter, as well as a scanned, conformed Adherence Letter is submitted. Entities will not be deemed to have adhered to the Protocol until both the signed and conformed Adherence Letters are submitted by email in accordance with the Adherence Period.

No other documents are required in order to adhere to the LCDS Protocol. Supporting documentation, such as board resolutions or a list of authorized signatures, can be provided and will be held in safekeeping by ISDA, but it is not necessary to submit such documents in order to adhere to the Protocol. Access to supporting documentation will only be provided if requested in writing.

The Protocol will open for adherence on July 24, 2007.

Email address for Delivery of Adherence Letters:
lcdsprotocol@isda.org

Policy Regarding Conformed Copies
A signed copy and a conformed copy of an Adherence Letter must be received in order for ISDA to list a party as having adhered to the LCDS Protocol.

The most common problem experienced in the adherence process for prior Protocols was the failure to include a conformed copy of the Adherence Letter. We remind parties that a conformed copy, together with a signed copy, must be submitted to ISDA in connection with adherence to the LCDS Protocol.

Frequently Asked Questions

ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the LCDS Protocol (the “Protocol”).

THIS FREQUENTLY ASKED QUESTIONS DOES NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.

Adherence Letter Submission Process
When do I need to send in my Adherence Letter? 
The Protocol is open between 9:00 a.m. New York Time on Tuesday, July 24, 2007 and 5:00 p.m. New York Time on Friday, September 14, 2007. Any entity must email its Adherence Letter to ISDA by 5:00 p.m. New York Time on Friday, September 14, 2007, or it will not be able to participate in the Protocol.

How do I send in my Adherence Letter?
All Adherence Letters must be delivered by email to lcdsprotocol@isda.org. In the email, you must submit both your conformed and executed copies of the Adherence Letter.

The Adherence Letter(s) should be on your institution’s letterhead. Nothing in the form Adherence Letter available on ISDA’s website may be changed with the exception of completing the details of your institutional name, date and signature block.

You are not required to send your original Adherence Letter(s) by mail to ISDA.

What is a conformed copy?
A conformed copy of the Adherence Letter means that the name of the authorized signatory (for example, Patricia Smith) is typed rather than having Patricia Smith’s actual signature on the letter. ISDA only posts on its website the conformed copy of all Adherence Letters.

You must also submit an executed, or signed, copy of the Adherence Letter in addition to the conformed copy of the Adherence Letter. ISDA keeps the executed copy of the Adherence Letter for its files and does not share the executed copy with anyone else.

Who is an authorized signatory?
An authorized signatory to the Adherence Letter is an individual who has the legal authority to bind the adhering institution.

What if I am an investment or asset manager – how do I complete the signature block?
If you are an investment or asset manager and act on behalf of multiple funds, you must indicate the following in the signature block: “Investment/Asset Manager, acting on behalf of the funds and accounts listed in the relevant Master Agreement between it and another Adhering Party”. A separate Adherence Letter for each fund or account does not need to be submitted to ISDA. Further, no specific names of clients of the investment/asset manager will be publicly disclosed on the ISDA website in connection with the Protocol.

Can I change the text of the Adherence Letter?
No. The Adherence Letter must be in the same format as the form letter published on ISDA's website. Please note that this version is slightly amended from the version contained in the Protocol because of the extension of the adherence period. You may obtain a copy of the form Adherence Letter by visiting the ISDA website, www.isda.org and clicking on “LCDS Protocol” and then clicking on “Form of Adherence Letter”.

Does it cost any money to adhere to the Protocol? 
No.

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