Failure to pay: Difference between revisions

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{{g}}{{a|negotiation|}}[[Failure to pay]] is the classic [[event of default]] in a financial {{t|contract}}. There is no more profound indication that you may be unable to honour your obligations to pay a sum of money that the fact you have actually not done so. Almost all close-outs will derive from some kind of failure to pay or insolvency — but don’t let that knowledge stop your credit department insisting on a four month negotiation about [[ratings downgrade|ratings downgrade trigger]]s.
{{failure to pay or deliver capsule}}
 
Contrast with a [[failure to deliver]] which in ''some'' {{t|contract}}s<ref>eg, and {{isdama}}.</ref> is tantamount in outrage to a [[failure to pay]], but in ''others'' is just one of those things that we accept, sort out, and move on with. For example, [[stock lending]] transactions, where a failure to ''lend'' {{gmslaprov|Securities}}, or ''return'' {{gmslaprov|Securities}} or {{gmslaprov|Collateral}}, might be just one of those things: the result of ordinary market fluctuations, where settlement failures are common, and one often relies on someone else — or a chain of someone elses — settling the necessary {{gmslaprov|Securities}} into you so you can settle them to your loan counterparty.
 
{{sa}}
*[[credit mitigation]]
*{{isdaprov|Failure to pay}} - {{isda}} provision
*[[event of default]]
*{{gmslaprov|Failure to pay}} under the {{gmsla}}, {{gmslaprov|mini close-out}} and all that good stuff.

Latest revision as of 12:09, 27 June 2019

Negotiation Anatomy™

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Failure to pay is the classic event of default in a financial contract. There is no more profound indication that you may be unable to honour your obligations to pay a sum of money that the fact you have actually not done so. Almost all close-outs will derive from some kind of failure to pay or insolvency — but don’t let that knowledge stop your credit department insisting on a four month negotiation about ratings downgrade triggers.

Contrast with a failure to deliver which in some contracts[1] is tantamount in outrage to a failure to pay, but in others is just one of those things that we accept, sort out, and move on with. For example, stock lending transactions, where a failure to lend Securities, or return Securities or Collateral, might be just one of those things: the result of ordinary market fluctuations, where settlement failures are common, and one often relies on someone else — or a chain of someone elses — settling the necessary Securities into you so you can settle them to your loan counterparty.

See also

  1. ↑ eg, and ISDA Master Agreement.
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