Mexican Legal Framework of Business Insolvency - White & Case

■ ■ Swaps:
transactions in which the parties agree to exchange cash flows during
a determined period of time.
■ ■ Credit derivatives:
These can be of three different kinds: (1) credit default
derivatives; (2) total return derivatives; and (3) credit-linked securities.
— Credit default derivatives:
transactions in which the holder pays a premium
to the maker in exchange for the maker paying a consideration to the holder
should a credit event occur.
— Total return derivatives:
transactions in which the holder pays to the maker
the cash flows from a risky asset as well as the appreciations of such risky
asset in exchange for the maker paying to the holder an interest rate, plus
any depreciation in the risky asset. Should a credit event occur, the holder
shall transfer to the maker the risky asset and the maker transfers to the
holder an agreed-upon amount.
— Credit-linked securities:
instruments or securities that, in addition to paying
a yield, have their value conditioned on the performance of a risky asset
and, should a credit event occur, the issuer shall deliver to the holder the
risky asset or an agreed-upon amount. It is unclear whether credit-linked
securities constitute financial derivative transactions for purposes of
the Insolvency Law since, while they are listed as a type of derivative
transaction pursuant to Banco de México’s regulations, they do not
constitute “agreements” and are not referred to as an underlying asset or
market value (but are rather referenced as a credit event).
Executory contracts for difference or futures contracts and derivative financial
transactions are terminated on the date of the declaration of insolvency, and are
netted out. The after-netting balance, if in favor of the debtor, shall be payable to the
debtor within 30 days or, if against the debtor, shall constitute a claim against the
debtor subject to concurso [LCM 104].
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