The newly released ISDA Restructuring Supplement and “Small Bang” Protocol allow for the incorporation into CDS contracts of Auction Settlement terms following a Restructuring Credit Event. The goal of these changes is to provide greater consistency in the settlement mechanisms across all CDS contracts, while preserving the economic interests of CDS counterparties. Counterparties who wish to amend existing CDS contracts must execute and deliver the Adherence Letter to the Small Bang Protocol by July 24, 2009.

RESTRUCTURING SUPPLEMENT

On March 12, 2009 the International Swaps and Derivatives Association, Inc. (“ISDA”) published the 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement Supplement to the 2003 ISDA Credit Derivatives Definitions (the “March 2009 Supplement”). The March 2009 Supplement added Auction Settlement as an additional Settlement Method hardwired into each CDS contract and provided for the establishment by ISDA of Credit Derivatives Determinations Committees (“Determinations Committees”) for the purposes of making certain determinations with respect to Credit Events and auctions. However, Auction Settlement only applied following Credit Events triggered by Bankruptcy or Failure to Pay, and did not apply to Credit Events triggered by Restructuring. The corresponding 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol (the “Big Bang Protocol”) allowed for counterparties to amend existing CDS contracts to incorporate the new Auction Settlement provisions through a single adherence letter.

Following the publication of the March 2009 Supplement, market participants developed a series of amendments to apply Auction Settlement following Restructuring, and the proposed amendments have been incorporated in the 2009 ISDA Credit Derivatives Determinations Committees, Auction Settlement and Restructuring Supplement to the 2003 ISDA Credit Derivatives Definitions (the “Supplement”) published by ISDA on July 14, 2009.

AUCTION SETTLEMENT FOLLOWING RESTRUCTURING

The Auction Settlement procedures introduced by the March 2009 Supplement could not be applied to most CDS contracts following a Credit Event triggered by Restructuring. Whereas the auction procedures for Credit Events triggered by Bankruptcy or Failure to Pay require a single list of Deliverable Obligations, most CDS contracts that include Restructuring as a Credit Event contain maturity limitations on the Deliverable Obligations following Restructuring, which limitations are based in part on the Scheduled Termination Date of the CDS. Thus what is deliverable for a contract with one Scheduled Termination Date may not be deliverable for another contract with a different Scheduled Termination Date. The new Auction Settlement procedures introduced by the Supplement replicate, to the extent possible, the maturity limitation requirements for Deliverable Obligations through the creation of a number of Maturity Buckets. Contracts are allocated to one of eight Maturity Buckets depending on each contract’s Scheduled Termination Date, with each Maturity Bucket having its own list of Deliverable Obligations and its own auction to settle the contracts. The goal of the Supplement is to establish consistency by allowing for Auction Settlement after Credit Events triggered by either Bankruptcy, Failure to Pay or Restructuring, while preserving the economic interests of the CDS counterparties.

Under the March 2009 Supplement, Auction Settlement would be automatic following the determination by the relevant Determinations Committee that a Credit Event triggered by Bankruptcy or Failure to Pay had occurred. This will not be the case under the Supplement following Restructuring. Rather, following a Credit Event triggered by Restructuring, either the CDS buyer or seller will have to elect for Auction Settlement by providing notice within a specified “triggering deadline” on the fifth business day following publication of the list of Deliverable Obligations.

The relevant Determinations Committee will ultimately determine, with respect to each Maturity Bucket, whether to hold an auction to settle the CDS contracts in such Maturity Bucket based on a “500/5 Criteria.” If, with respect to each Maturity Bucket, 500 CDS contracts are triggered and 5 or more dealers are parties to such contracts, an auction will be compulsory. However, the Determinations Committee can also decide to hold an auction for a Maturity Bucket that does not satisfy the 500/5 Criteria.

CDS contracts that follow Old Restructuring conventions (as opposed to Modified Restructuring or Modified Modified Restructuring), which do not contain maturity limitations, will not follow these auction procedures and will instead use the same procedures following a Bankruptcy or Failure to Pay.

“SMALL BANG” PROTOCOL FOR EXISTING TRANSACTIONS

In connection with the Supplement, ISDA has also released the 2009 ISDA Credit Derivatives Determinations Committees, Auction Settlement and Restructuring CDS Protocol (the “Small Bang Protocol”), under which counterparties to existing CDS contracts may amend such existing transactions to incorporate the terms of the Supplement, as well as the terms of the March 2009 Supplement, as the Small Bang Protocol also contains the terms of the Big Bang Protocol. Counterparties who wish to do so must sign the Small Bang Protocol’s Adherence Letter and deliver the executed Adherence Letter to ISDA on or before July 24, 2009. The changes will be effective as of July 27, 2009.

The full texts of the Supplement and the Small Bang Protocol are available on ISDA’s website at www.isda.org.