On Feb. 27, 2009, the International Swaps and Derivatives Association, Inc. (“ISDA”) published the ISDA Close-out Amount Protocol (the “Protocol”). ISDA published the Protocol in response to demand from its members who preferred an alternative method of calculating trade termination payments under their 1992 ISDA Master Agreements following the bankruptcy of Lehman Brothers.

As with past ISDA protocols, a party adheres to the Protocol by sending an adherence letter to ISDA. If both parties to a 1992 ISDA Master Agreement adhere to the Protocol, then the agreement becomes a “Covered Agreement” and incorporates the modifications contained in the Protocol. Unlike past ISDA credit event protocols which had deadlines for adherence, the adherence period for the Close-out Amount Protocol will continue indefinitely. Neither party to a Covered Agreement may unilaterally revoke its adherence with respect to such Covered Agreement once it has adhered to the Protocol.

The Protocol automatically replaces Market Quotation (as defined in the 1992 ISDA Master Agreement) with Close-out Amount (as defined in the Protocol and also in the 2002 ISDA Master Agreement) in all Covered Agreements and it gives adhering parties the option whether or not to replace Loss (as defined in the 1992 ISDA Master Agreement) with Close-out Amount. It also allows adhering parties to elect whether or not to incorporate amendments to certain ISDA definitions which conform such definitions to the provisions of the Protocol. If a Covered Agreement contains customized, negotiated provisions regarding termination payments (“Express Provisions”), the Protocol will not supersede the Express Provisions.

It is important for any party that intends to adhere to the Protocol to perform due diligence on its credit support documents or to consult its legal counsel to determine whether the consents of any third-party credit support providers are required prior to the amendment of its master agreement.