I support your comments, and do not view vanilla convertibles as being
contingent, the possibility of trustee exercise is a mechanism to protect
bondholders, but does not change the original proposition "exchange at
bondholders option".

regards
Henning Bruttel

> -----Original Message-----
> From:	Robert Pickel [SMTP:RPICKEL@isda.org]
> Sent:	Monday, October 15, 2001 06:07
> To:	ISDA BOARD
> Cc:	Kimberly Summe; Louise Marshall
> Subject:	Credit Derivatives Issue
> 
> You should be aware that an issue is currently under extensive debate in
> the
> credit derivative area resulting from the insolvency of Railtrack in the
> UK.
> ISDA has been asked by some participants in the market to make a statement
> regarding a provision of its Credit Derivatives Definitions. Others are
> either still considering their position or would prefer that ISDA not
> issue
> a statement. 
>  
> Specifically, the discussion relates to the deliverability of convertible
> bonds of Railtrack. There is no dispute that a Credit Event occurred. What
> is in dispute is whether the bonds satisfy the definition of "Not
> Contingent" under the Definitions, which is a characteristic typically
> required of deliverable obligations. This characteristic requires that the
> payment or repayment of principal on the bonds not be subject to a
> contingency. The bonds are convertible into equity of Railtrack at the
> option of the holder or, in certain limited circumstances, at the option
> of
> the trustee for the bondholder. The provision for the trustee to exercise
> the conversion (sometimes referred to as a "widows and orphans" clause) is
> a
> standard clause in bonds issued in England and is intended to protect
> bondholders who may have inadvertently failed to exercise their conversion
> right when it would be clearly beneficial economically for them to do so.
> In
> the case of Railtrack, conversion would not have been economically
> beneficial at any time recently, but nevertheless the right of the trustee
> to convert exists.
>  
> A draft statement has been prepared for consideration by the Credit
> Derivatives Market Practice Committee, which I have attached for your
> review. The statement refers to two documents that are in draft form, the
> User's Guide to the Definitions (which is scheduled to be published in the
> next week or two) and a Supplement currently under consideration by the
> "group of six" subgroup of the Committee. In each of these documents, we
> suggest that "plain vanilla" convertible bonds should satisfy the "Not
> Contingent" characteristic and should, therefore, be deliverable. "Plain
> vanilla" convertible bonds for this purpose include bonds where conversion
> is at the option of the holder of the trustee.
>  
> A meeting of a number of dealers based in London (not an ISDA meeting) is
> scheduled for Tuesday. It is not likely that we will publish anything
> prior
> to that meeting.
>  
> I would appreciate your views on whether we should issue any statement
> regarding this situation. We are continuing to poll members for their
> views
> on whether this type of market statement would be appropriate. We are also
> discussing with Allen & Overy and with Clifford Chance and Linklaters how
> we
> might achieve a legal basis for making the statement. Please share your
> views with the other addressees of this email, as they are coordinating
> the
> views of members.
>  
> Bob