General Motors LCDS Auction

Frequently Asked Questions

ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the General Motors Corporation LCDS Auction Settlement Terms (the "Auction Terms").

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 AUCTION TERMS. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING THE AUCTION TERMS. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.

Scope of Transaction Coverage Relating to the Auction Terms
Will the Auction Terms affect my single name LCDS trades?
Yes. Single name LCDS trades documented under the Syndicated Secured Loan Credit Default Swap Standard Terms Supplement (the “LCDS Standard Terms”) published by ISDA on May 22, 2007 will be subject to the Auction Terms. This includes LCDS transactions documented under the LCDS Standard Terms published by ISDA on June 8, 2006, provided both parties adhered to the ISDA LCDS Protocol. Thus, single name LCDS trades on General Motors Corporation First Lien Loans documented on this basis will be subject to the procedures set forth in the Auction Terms.

What other credit derivative transactions are affected by the Auction Terms?
Untranched LCDX transactions and portfolio LCDS transactions that reference General Motors Corporation First Lien Loans will be covered by the Auction Terms if they are documented based on the LCDX Untranched Transactions Standard Terms Supplement published by ISDA and CDS IndexCo on May 22, 2007 and the LCDS Standard Terms published by ISDA on May 22, 2007, respectively. Tranched portfolio LCDS transactions, including LCDX tranche transactions, that reference General Motors Corporation First Lien Loans will be covered by the Auction Terms if they are documented based on the LCDX Tranche Transactions Standard Terms Supplement published by ISDA and CDS IndexCo on September 25, 2007 or a predecessor draft of that document.

What credit derivative transactions are not affected by the Auction Terms?

Any credit derivative transaction that is not an LCDS transaction, that is not documented in one of the ways described above, or that does not reference General Motors Corporation First Lien Loans will not be affected.

Auction
Who runs the auction?
The auction will be administered by Creditex and Markit and not by ISDA.

When is the auction?
The auction will be held on Friday June 12, 2009. Details of the auction results will be posted at www.creditfixings.com .

Physical Settlement through the auction
I want to physically settle through the auction, what do I have to do?
Parties who wish to deliver or receive Deliverable Obligations may place a Physical Settlement Request with a Participating Bidder.  A Physical Settlement Request is an order to sell or buy Deliverable Obligations at the Final Price.  A Physical Settlement Request must be submitted in the form of the Customer Physical Settlement Request Letter set out in Exhibit 5 to the Auction Term.  Please click here for a form of Customer Physical Settlement Request Letter. Parties wishing to submit a Customer Physical Settlement Request Letter should contact their dealer that is acting as a Participating Bidder in advance of the auction. A list of Participating Bidders is available on our website.

Following the auction, each party that submitted a Physical Settlement Buy or Sell Request that is matched in the auction will be treated as if they had entered into an agreement with the relevant Participating Bidder on terms equal to a Representative  Auction-Settled Transaction (RAST). Parties that submitted a Physical Settlement Sell Request must send a Notice of Physical Settlement to the relevant Participating Bidder, specifying which Deliverable Obligations they will deliver in settlement of that transaction.  A form of Notice of Physical Settlement is contained as an exhibit to the Auction Terms.  The deadline for sending this notice is specified as the "Notice of Physical Settlement Date" in the Auction Terms.

Cash Settlement Date and Accruals
When is the cash settlement date?
The cash settlement date (referred to in the auction terms as the "Scheduled Settlement Date") will be June 18, 2009.

How are accruals calculated?
Depending on the timing of the auction settlement process relative to standard payment dates for LCDS contracts, accruals are calculated and settled using either a "stub accrual" methodology or a "full coupon and rebate" methodology. Please see below for the methodology applied to the Auction and further explanation of these methodologies.

For General Motors Corporation, the 'stub accrual' methodology will apply. Fixed Rate will accrue to and including the Common Event Determination Date, which is June 1, 2009.

Under the "stub accrual" methodology, the Fixed Rate in respect of the relevant Reference Entity accrues from and including the previous payment date (or the Effective Date if it is the first accrual period) to and including the Common Event Determination Date and the resulting Fixed Amount in respect of the relevant Reference Entity is paid on the Cash Settlement Date. For tranche transactions, the "resulting Fixed Amount" is the accrual on the loss amount or recovery amount incurred on the relevant tranche (if any).

The "full coupon and rebate" methodology is generally applied when a standard CDS contract payment date (the "Affected Payment Date") occurs after the Event Determination Date, but before the auction settlement process is completed. This reflects the same economics as the "stub accrual" methodology (i.e. Fixed Rate accrues to and including the Common Event Determination Date), but the payment mechanics are different in order to facilitate settlement. Under the "full coupon and rebate" methodology, the Fixed Rate in respect of the relevant Reference Entity accrues from and including the previous payment date (or the Effective Date if it is the first accrual period) to but excluding the Affected Payment Date for purposes of the payment due on that date (unless the transaction matures on that date), i.e. "full coupon" is paid on that date. However, a rebate of the Fixed Rate accrual in respect of the relevant Reference Entity for the period from and including the calendar day after the Common Event Determination Date, to but excluding the Affected Payment Date, will be added to the Cash Settlement Amount to be paid to Buyer on the Cash Settlement Date. For tranche transactions, the "Fixed Rate accrual in respect of the relevant Reference Entity" is the accrual on the loss amount or recovery amount incurred on the relevant tranche (if any). For avoidance of doubt, in the "full coupon and rebate" the accrual for the "full coupon" is calculated on the pre-event total recovery and loss whereas the rebate is calculated using the event loss amount or recovery amount incurred. If the relevant transaction matures on the Affected Payment Date, the accrual is to and including the Affected Payment Date, then the Fixed Rate and the rebate will accrue to AND INCLUDING the Affected Payment Date. Finally, please note that if the Affected Payment Date falls on a non-business day, then the end of the accrual period for purposes of the Fixed Rate accrual and the rebate will adjust to the following business day, EXCEPT where the transaction matures on the Affected Payment Date, in which case it does NOT adjust, pursuant to Section 1.6 of the 2003 ISDA Credit Derivatives Definitions.

This information is summarized in the table below for the various payment date scenarios:

 

Payment Date Scenario

Methodology Applicable

Fixed Rate Accrues From and including

Fixed Rate accrues to

Resulting Fixed Amount Paid

Rebate accrues from and including

Rebate accrues to

Rebate paid

Payment Date at some time outside the auction settlement process

"Stub accrual"

Previous payment date/Effective Date

To and including Common Event Determination Date

Cash Settlement Date

N/A

N/A

N/A

Payment Date occurs on business day during auction settlement process, trade does not mature on that date

"Full coupon and rebate"

Previous payment date/Effective Date

To but excluding Affected Payment Date

Affected Payment Date

Day after Common Event Determination Date

To but excluding Affected Payment Date

Cash Settlement Date

Payment Date occurs on business day during auction settlement process, trade matures on that date

"Full coupon and rebate"

Previous payment date/Effective Date

To and including Affected Payment Date

Affected Payment Date

Day after Common Event Determination Date

To and including Affected Payment Date

Cash Settlement Date

Payment Date occurs on non-business day during auction settlement process, trade does not mature on that date

"Full coupon and rebate"

Previous payment date/Effective Date

To but excluding ADJUSTED Affected Payment Date

ADJUSTED Affected Payment Date

Day after Common Event Determination Date

To but excluding ADJUSTED Affected Payment Date

Cash Settlement Date

Payment Date occurs on non-business day during auction settlement process, trade matures on that date

"Full coupon and rebate"

Previous payment date/Effective Date

To and including NON-ADJUSTED Affected Payment Date

ADJUSTED Affected Payment Date

Day after Common Event Determination Date

To and including NON-ADJUSTED Affected Payment Date

Cash Settlement Date