The credit derivatives industry has succeeded in streamlining
and standardizing the documentation for credit derivative
transactions in recent years, but even the best efforts to create
certainty can be thwarted by sophisticated lawyers and a
sympathetic court. Some observers might say that this is the case
in Eternity Global Master Fund Ltd v Morgan Guaranty Trust Co of
New York, which is pending in the US District Court for the
Southern District of New York. As it stands, Eternity Global
is a breach of contract action that may rise or fall on the meaning
of a mandatory debt exchange.
At the heart of the dispute is what conventional wisdom and
common sense might suggest is legal hair-splitting: whether a
voluntary debt exchange was really a mandatory debt
exchange. Resolving this question may be the determining factor in
whether Morgan breached a credit default swap when it took the
position that Argentina's November 2001 voluntary debt...