Guide to hedging within a financing context—the ISDA documents
Produced in partnership with Ruth Marken and Jason Brooks of CMS
Guide to hedging within a financing context—the ISDA documents

The following Banking & Finance guidance note Produced in partnership with Ruth Marken and Jason Brooks of CMS provides comprehensive and up to date legal information covering:

  • Guide to hedging within a financing context—the ISDA documents
  • Background
  • ISDA Master Agreement and Schedule
  • Confirmations
  • Credit support annex

Background

Loan transactions are often negotiated over a lengthy period of time. Hedging is typically put in place to support a loan, eg an interest rate swap to convert a floating rate (typically LIBOR) under the facility agreement into a fixed rate. However, it is often the case that the hedging agreements are only presented at the end of a transaction, as a condition precedent to drawdown of the loan and as a 'standard' document to be executed.

This Practice Note looks at the pitfalls of accepting this approach and how, by considering the International Swaps and Derivatives Association (ISDA) documentation in the light of the facility agreement and other finance documents, a consistent position can be reached which reflects the commercial agreement.

This Practice Note should be read in conjunction with the following Practice Notes:

  1. Guide to hedging within a financing context—for the financing lawyer

  2. Scope of the ISDA Master Agreement part 1—Sections 1 (Interpretation) and 2 (Obligations)

  3. Scope of the ISDA Master Agreement part 2—Section 3 (Representations)

  4. Scope of the ISDA Master Agreement part 3—Section 4 (Agreements)

  5. Scope of the ISDA Master Agreement part 4—Section 5 (Events of Default and Termination Events)

  6. Scope of the ISDA Master Agreement part 5—Section 6 (Early Termination)

  7. Scope of the ISDA Master Agreement part 6—Sections 7 to 14 (The 'back-end'), and