Isda definitions unclear, says US court

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...