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[[10 - Pledge GMSLA Provision|To]] be read with the commentary paragraph {{pgmslaprov|11}} ({{pgmslaprov|Consequences of an Event of Default}}) and verily the accompanying {{pgmslaprov|Security Agreement}}, for the way close-out happens under a [[pledge]] structure is markedly different from the [[close-out netting]] regime of the {{gmsla}}. | |||
===Control over assets and the desirability of a [[grace period]] before action=== | |||
[[10 - Pledge GMSLA Provision|Now]] there’s a subtle point to look out for here about control over assets. If, as you are likely to have under a {{pgmsla}}, you have ''[[pledge]]d'' your assets to an [[escrow agent]] or third party [[custodian]], the key (for your financial reporting friends and relations) will be that you retain ownership of those assets and, more to the point, they stay ''outside'' the [[insolvency estate|bankruptcy estate]] of your {{pgmslaprov|Lender}}. That’s the whole reason you have the {{pgmsla}} and not an ordinary [[title-transfer]] {{gmsla}} in the first place — to avoid having to hold capital against the credit risk of your {{pgmslaprov|Lender}}s for the return of excess {{pgmslaprov|Collateral}}. | [[10 - Pledge GMSLA Provision|Now]] there’s a subtle point to look out for here about control over assets. If, as you are likely to have under a {{pgmsla}}, you have ''[[pledge]]d'' your assets to an [[escrow agent]] or third party [[custodian]], the key (for your financial reporting friends and relations) will be that you retain ownership of those assets and, more to the point, they stay ''outside'' the [[insolvency estate|bankruptcy estate]] of your {{pgmslaprov|Lender}}. That’s the whole reason you have the {{pgmsla}} and not an ordinary [[title-transfer]] {{gmsla}} in the first place — to avoid having to hold capital against the credit risk of your {{pgmslaprov|Lender}}s for the return of excess {{pgmslaprov|Collateral}}. | ||
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There’s — at this particular moment in time, and no other — a little ''tension'' in the air. As {{pgmslaprov|Borrower}} you need to satisfy your accountants that the assets really are yours, in case the {{pgmslaprov|Lender}} unexpectedly blows up; the {{pgmslaprov|Lender}} wants quick access to them, and to put aside all ceremony, in case ''you'' do. | There’s — at this particular moment in time, and no other — a little ''tension'' in the air. As {{pgmslaprov|Borrower}} you need to satisfy your accountants that the assets really are yours, in case the {{pgmslaprov|Lender}} unexpectedly blows up; the {{pgmslaprov|Lender}} wants quick access to them, and to put aside all ceremony, in case ''you'' do. | ||
Should we be unthinkably deep in the tail of improbable market events such that ''both'' parties are blowing up simultaneously — the sort of event that Fisher Black would tell you ''ought to be'' unobservable in a period several times the life in the universe, but that {{author|Nassim Nicholas Taleb}} | Should we be unthinkably deep in the tail of improbable market events such that ''both'' parties are blowing up simultaneously — the sort of event that Fisher Black would tell you ''ought to be'' unobservable in a period several times the life in the universe, but that {{author|Nassim Nicholas Taleb}} likes to remind us ''does'' happen once every five years or so — these two contingencies can arrive at once. On the theory, the {{pgmslaprov|Borrower}}’s interest trumps the Lender’s, since the security interest keeps the assets out of range of the {{pgmslaprov|Borrower}}’s other creditors. But that is cold comfort for most [[Credit officer|credit sanctioners]], and besides, they don’t want to hang around waiting when collateral values are pogo-ing around with all the market dislocation. | ||
Thus the dynamics dealing with who can tell the escrow agent to do what at any point in time are — ''sensitive'', shall we say. Nowhere did {{islacds}} address this in the document. It can be dealt with by a little [[grace period]], requiring the credit officer to wait, not for long, but for long enough to satisfy a financial reporting officer that there is enough time to settle any debts, call off the dogs and carry sedately on. | Thus the dynamics dealing with who can tell the escrow agent to do what at any point in time are — ''sensitive'', shall we say. Nowhere did {{islacds}} address this in the document. It can be dealt with by a little [[grace period]], requiring the credit officer to wait, not for long, but for long enough to satisfy a financial reporting officer that there is enough time to settle any debts, call off the dogs and carry sedately on. | ||
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Try this: | Try this: | ||
:''Each {{pgmslaprov|Event of Default}} listed in Paragraph {{pgmslaprov|10.1}}(a), (b) and (c) will become {{pgmslaprov|Events of Default}} only if, within 2 hours following the {{pgmslaprov|Lender}}’s written notice to the {{pgmslaprov|Borrower}} of the event in question, {{pgmslaprov|Borrower}} has not | :''Each {{pgmslaprov|Event of Default}} listed in Paragraph {{pgmslaprov|10.1}}(a), (b) and (c) will become {{pgmslaprov|Events of Default}} only if, within 2 hours following the {{pgmslaprov|Lender}}’s written notice to the {{pgmslaprov|Borrower}} of the event in question, {{pgmslaprov|Borrower}} has not cured the relevant default in full. Upon the expiry of that 2-hour period without such cure, the {{pgmslaprov|Event of Default}} will occur immediately without the need for further notice from the {{pgmslaprov|Lender}}.'' | ||
===I haven’t got a two-hour grace period! Is that a problem?=== | |||
Those on the {{pgmsla}} standard form won’t have that [[grace period]] of course. Are you sunk? Possibly not, but you may have to undertake a lonely intellectual voyage taking in topics like [[Constructive|constructive trust]], tracing of assets, and [[tortious]] liability on the part of a third party’s agent for [[Appropriation|misappropriation]] of assets to get [[comfortable]]. |