"The Effect of Bankruptcy On An OTM Swap" by Timothy Lin published in Derivatives Week

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June 25, 2012

Richards Kibbe & Orbe LLP partner Timothy E. Lin  authored a two-part article titled “The Effect of Bankruptcy On An OTM Swap” that appeared in Derivatives Week. The bankruptcies of Lehman entities around the globe have highlighted novel questions in the OTC derivatives market arising from the insolvency of a swap counterparty:

  • What happens if the non-defaulting counterparty is out of the money on a swap and upon termination would owe money to the debtor counterparty?
  • Can the non-defaulting counterparty strategically refuse to terminate the swap while at the same time refusing to perform its ongoing scheduled payment obligations?
  • Or can the estate of the in-the-money debtor compel the non-defaulting counterparty to either terminate or perform?

As courts in the U.S. and England have issued conflicting opinions on these questions, Mr. Lin examined the conflicting cases, the underlying differences in U.S. and English insolvency law and public policy, and proposed amendments by ISDA intended to provide greater clarity in light of the conflicting case law.

Click here to read "The Effect of Bankruptcy On An OTM Swap."