Fish or cut bait: Difference between revisions

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{{a|negotiation|
{{a|negotiation|
[[File:Fish or cut bait.gif|450px|thumb|center|Eytmology corner: Originally, “cut bait” referred to cutting up the bait into portions suitable for a hook. Latterly it has come to mean “cutting one’s fishing line” and giving up on fishing altogether. So, the expression has changed over time to “crap, or get off the pot”.]]
{{image|shark pot|jpg|Eytmology corner: Originally, “cut bait” referred to cutting up the bait into portions suitable for a hook, so the expression means “make yourself useful, for crying out loud”. Latterly it has come to mean “cutting one’s fishing line” giving up the fish altogether. So, “crap, or get off the pot”.}}}}“[[Use it or lose it]]”, in the vernacular.  
}}
“[[Use it or lose it]]”, in the vernacular.  


To carry on the rugby {{t|metaphor}}, when you have a good maul going forward, but momentum stalls and it looks like someone might have their hands on your ball, you might call “[[fish or cut bait]]!!” to stop an untriggered [[termination event]] hovering indefinitely over you and freaking your out your investors.  
To carry on the rugby {{t|metaphor}}, when you have a good maul going forward, but momentum stalls and it looks like someone might have their hands on your ball, you might call “[[fish or cut bait]]!” to stop an untriggered [[termination event]] hovering indefinitely over you and freaking your out your investors.  
===When [[NAV trigger]]s attack===
Let’s say you’ve had a wonky month  — [[Coronavirus]], right? —and there’s been such a marked drawdown on your [[assets under management|AUM]] that you’ve blown through that preposterous [[NAV trigger]] your broker forced you to agree when you were a two-person start-up above a shoe-shop in Camden. I ''know'', right?


Let’s say you’ve had a wonky month  — Coronavirus, right? —and there’s been a market drawdown on your [[assets under management|AUM]] — so much so that you have blown through [[NAV trigger]] you were forced into when you were a two-person start-up above a shoe-shop in Camden.  
And now this. From nowhere, your dopey [[broker]] has a gun to your head, but apparently not much better an idea than you do what to ''do'' about it. {{sex|She}} keeps muttering nervously and changing the subject whenever you mention it.  


Suddenly, out of nowhere, your [[broker]] seems to have a gun to your head, but not much better an idea than you do what to ''do'' about it. {{sex|She}} keeps muttering nervously and changing the subject whenever you mention it.  
Now you ''could'' ask her to ''waive'' the [[NAV trigger]]<ref>And you should, just for the perverse satisfaction of knowing you have initiated a petulant war between the broker’s [[legal]] and [[credit]] teams about whose job it is to prepare and send the [[NAV trigger]] waiver. On a day when your fund is tanking, take a moment to enjoy the little pleasures life offers.</ref> but the moment you blow through an [[ATE]] never feels like the best time to crave your broker’s indulgence.  


Now you ''could'' ask for a [[NAV trigger]] ''waiver'',<ref>And you should: this will start a petulant war between the broker’s legal and credit teams about whose job it is to prepare and send it.</ref> but the moment you blow through an [[ATE]] never feels like the ''best'' time to crave your broker’s indulgence. It would be much better to sort this out upfront, from a position of (relative) strength when you are negotiating docs: the weather’s fair, the wind is filling your sail, and all is well in the world.
===The fish or cut bait gambit===
You realise now how much better it would have been had you sorted this out at the start of the [[Relationship contract|relationship]], when you were handsome, the [[sales]]guy was frisky, the weather was set fair, the wind filled your sail, and all was well in the world.


So was born the “[[fish or cut bait]]” negotiation gambit. This is to say, “all right, have your stupid [[NAV trigger]] but, when it happens, ''be prepared to put your money where your mouth is''. You have a month: shoot, or put your gun away. For ''good''.”
And so was born the “[[fish or cut bait]]” [[negotiation]] gambit. This is to say, “all right, have your stupid [[NAV trigger]] ''but'' if it happens — it won’t, of course, but for the purposes of argument let’s just say it did — ''be prepared to put your money where your mouth is''. You have a month, soldier: shoot, or put your gun away. For ''good''.”


Quietly, risk officers quite ''like'' the idea of a silent, festering, trigger they can pull at any later stage should something unmentionable happen and there isn’t a better alternative. But carry on. Say, “look, I don’t want a Sword of Damocles hanging indefinitely over my head. If I am in the shtook, fair enough, put me out of my misery, but at least be prompt about it. And look — if I do make it to the end of the period without blowing up, can’t we assume I will be out of the woods?”
Quietly, [[Credit officer|risk officers]] quite ''like'' the idea of a silent, festering trigger they can pull at any later stage should something unmentionable happen and there isn’t a better alternative. But carry on. Say, “look, I don’t want a Sword of Damocles hanging indefinitely over my head. If I am in the shtook, fair enough, put me out of my misery, but at least be prompt about it. And look — if I do make it to the end of the period without blowing up, can’t we assume I will be out of the woods?”


Now we know a [[credit officer]]’s lot is not a happy one. She has wound up working in credit, for one thing: that can hardly have been the plan. Plus, she is generally overworked, under-appreciated, under-resourced and, by natural disposition, beset by existential doubts — that is in large part why she became a credit officer in the first place. She will say a [[fish or cut bait]] clause makes her life ''harder'': the cut-off time is inevitably arbitrary (true — but isn’t ''life'' arbitrary?); what counts as an {{isdaprov|ATE}} is often ambiguous (''was'' it an [[ATE]]? ''Did'' they exceed the {{isdaprov|Threshold Amount}}?) and in any weather, it is hard to calculate (is it 30 days from the actual event, or when you ''knew'' of the event, or when you ''ought reasonably to have known'' about it, and so on).  
Now we know a [[credit officer]]’s lot is not a happy one. She has wound up working in credit, for one thing: that can hardly have been the plan. Plus, she is generally overworked, under-appreciated, under-resourced and, by natural disposition, beset by existential doubts — that is in large part why she became a credit officer in the first place. She will say a [[fish or cut bait]] clause makes her life ''harder'': the cut-off time is inevitably arbitrary (true — but isn’t ''life'' arbitrary?); what counts as an {{isdaprov|ATE}} is often ambiguous (''was'' it an [[ATE]]? ''Did'' they exceed the {{isdaprov|Threshold Amount}}?) and in any weather, it is hard to calculate (is it 30 days from the actual event, or when you ''knew'' of the event, or when you ''ought reasonably to have known'' about it, and so on).  


Undoubtedly some bright spark will want a [[grace period]], or to carve out [[securities financing]] settlements — an infinitude of pedantries one can strew in a credit officer’s path — and, even if your ATEs are not beset with deplorable contortions, at the time when one comes about, the world tends to be off its axis, the head of risk will have his hair on fire and the acrid fog of war will be filled with enough choking confusion, angst and resentment to delay your close-out decision long enough to run down a [[fish or cut bait]] period. ''No-one will be quite sure whether it is an ATE or not, and no one will want to be the one to pull the trigger.''
She will also hold it as an article of faith that thrashing out [[fish or cut bait]] clauses is a pain. Some wise-guy — in this case, you — will insist on a [[grace period]], or to carve out [[securities financing]] settlements, or to be served with a notice of publicly available information there is an infinitude of pedantries one can strew in a [[credit officer]]’s path — and, even if your [[ATE]]s are not beset with deplorable contortions, at the time when one comes about, the world tends to be off its axis, the head of risk will have his hair on fire and the acrid fog of war will be filled with enough choking confusion, angst and resentment to delay your reaction easily long enough to run down a [[fish or cut bait]] period. ''No-one will be quite sure whether it is an ATE or not, and no one will want to be the one to pull the trigger.''


And in any case, if ''you'' have committed an [[event of default]], you are hardly the one who should be calling shots about when and whether ''I'' [[Close out|close you out]], are you?
Since no-one exercises [[NAV triggers]] anyway<ref>A credit officer may well ''think'' this but will never ''say'' it.</ref> she may want to to just shoot herself, or better still, you, before the negotiation starts.
 
Since no-one exercises [[NAV triggers]] anyway well, have ''you'' ever? — You are best to just shoot yourself before the negotiation starts.


===The JC’s fish or cut bait trick===
===The JC’s fish or cut bait trick===
Well, we’ve got a cunning trick to break this deadlock. Here it is:  
Which is where the JC comes in, to de-escalate, with a cunning trick to break this deadlock:  


:''Make the fish or cut bait clause run from the point when the defaulting party gives written notice that it has committed an [[event of default]] and wishes the [[fish or cut bait]] period to start running.''
:''Make the fish or cut bait clause run from the point when the defaulting party gives written notice that it has committed an [[event of default]] and wishes the [[fish or cut bait]] period to start running.''
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*'''The duration of the period is crystal clear'''. There is no sneaking around, keeping a low profile and hoping the innocent party is asleep at the switch.
*'''The duration of the period is crystal clear'''. There is no sneaking around, keeping a low profile and hoping the innocent party is asleep at the switch.
*'''It encourages clear, open and early communication'''. It opens a channel of communication that is often strangely shut at a time of stress. Often a broker will want to help a distressed client to reduce its positions to avoid a close-out. ''Brokers don’t actually want to close their clients out. That is the last thing they want: a fact lost on many buy-side negotiators.
*'''It encourages clear, open and early communication'''. It opens a channel of communication that is often strangely shut at a time of stress. Often a broker will want to help a distressed client to reduce its positions to avoid a close-out. ''Brokers don’t actually want to close their clients out. That is the last thing they want: a fact lost on many buy-side negotiators.
*The [[credit officer]]’s steampunk machination to go through its motions — whilst at the same time making them as straightforward to go through as possible. “we know we have a default event, we know we can close out, we have a line of dialogue to the client, we have 25 days left to make and communicate the decision.”
*'''It lets the [[broker]]’s steampunk machine to go through its motions as quickly as possible'''. “we ''know'' we have a default event, we ''know'' we can close out, we have a line of dialogue to the client, we have 25 days left to make and communicate the decision.”
 
Easy, really.


{{sa}}
{{sa}}
*[[Credit officer]]
*[[Credit officer]]
*[[Commercial imperative]]
*[[Commercial imperative]]
{{Technical Tuesday|1/12/20}}
{{ref}}
{{ref}}

Latest revision as of 13:40, 9 January 2024

Negotiation Anatomy™


Eytmology corner: Originally, “cut bait” referred to cutting up the bait into portions suitable for a hook, so the expression means “make yourself useful, for crying out loud”. Latterly it has come to mean “cutting one’s fishing line” — giving up the fish altogether. So, “crap, or get off the pot”.
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Use it or lose it”, in the vernacular.

To carry on the rugby metaphor, when you have a good maul going forward, but momentum stalls and it looks like someone might have their hands on your ball, you might call “fish or cut bait!” to stop an untriggered termination event hovering indefinitely over you and freaking your out your investors.

When NAV triggers attack

Let’s say you’ve had a wonky month — Coronavirus, right? —and there’s been such a marked drawdown on your AUM that you’ve blown through that preposterous NAV trigger your broker forced you to agree when you were a two-person start-up above a shoe-shop in Camden. I know, right?

And now this. From nowhere, your dopey broker has a gun to your head, but apparently not much better an idea than you do what to do about it. She keeps muttering nervously and changing the subject whenever you mention it.

Now you could ask her to waive the NAV trigger[1] but the moment you blow through an ATE never feels like the best time to crave your broker’s indulgence.

The fish or cut bait gambit

You realise now how much better it would have been had you sorted this out at the start of the relationship, when you were handsome, the salesguy was frisky, the weather was set fair, the wind filled your sail, and all was well in the world.

And so was born the “fish or cut baitnegotiation gambit. This is to say, “all right, have your stupid NAV trigger but if it happens — it won’t, of course, but for the purposes of argument let’s just say it did — be prepared to put your money where your mouth is. You have a month, soldier: shoot, or put your gun away. For good.”

Quietly, risk officers quite like the idea of a silent, festering trigger they can pull at any later stage should something unmentionable happen and there isn’t a better alternative. But carry on. Say, “look, I don’t want a Sword of Damocles hanging indefinitely over my head. If I am in the shtook, fair enough, put me out of my misery, but at least be prompt about it. And look — if I do make it to the end of the period without blowing up, can’t we assume I will be out of the woods?”

Now we know a credit officer’s lot is not a happy one. She has wound up working in credit, for one thing: that can hardly have been the plan. Plus, she is generally overworked, under-appreciated, under-resourced and, by natural disposition, beset by existential doubts — that is in large part why she became a credit officer in the first place. She will say a fish or cut bait clause makes her life harder: the cut-off time is inevitably arbitrary (true — but isn’t life arbitrary?); what counts as an ATE is often ambiguous (was it an ATE? Did they exceed the Threshold Amount?) and in any weather, it is hard to calculate (is it 30 days from the actual event, or when you knew of the event, or when you ought reasonably to have known about it, and so on).

She will also hold it as an article of faith that thrashing out fish or cut bait clauses is a pain. Some wise-guy — in this case, you — will insist on a grace period, or to carve out securities financing settlements, or to be served with a notice of publicly available information — there is an infinitude of pedantries one can strew in a credit officer’s path — and, even if your ATEs are not beset with deplorable contortions, at the time when one comes about, the world tends to be off its axis, the head of risk will have his hair on fire and the acrid fog of war will be filled with enough choking confusion, angst and resentment to delay your reaction easily long enough to run down a fish or cut bait period. No-one will be quite sure whether it is an ATE or not, and no one will want to be the one to pull the trigger.

Since no-one exercises NAV triggers anyway[2] she may want to to just shoot herself, or better still, you, before the negotiation starts.

The JC’s fish or cut bait trick

Which is where the JC comes in, to de-escalate, with a cunning trick to break this deadlock:

Make the fish or cut bait clause run from the point when the defaulting party gives written notice that it has committed an event of default and wishes the fish or cut bait period to start running.

This gets all incentives the right way around.

  • The defaulter must categorically concede that it’s in default. The cut bait period doesn’t start until this happens. This dispels most of the doubts and difficulties a broker might agonize over when wondering whether it can pull the trigger or not. The defaulting has to say, “Look, friend, you’ve got me. Bang to rights.” Of course, the defaulter might not want to do that. But ask yourself: do you feel lucky?
  • The duration of the period is crystal clear. There is no sneaking around, keeping a low profile and hoping the innocent party is asleep at the switch.
  • It encourages clear, open and early communication. It opens a channel of communication that is often strangely shut at a time of stress. Often a broker will want to help a distressed client to reduce its positions to avoid a close-out. Brokers don’t actually want to close their clients out. That is the last thing they want: a fact lost on many buy-side negotiators.
  • It lets the broker’s steampunk machine to go through its motions as quickly as possible. “we know we have a default event, we know we can close out, we have a line of dialogue to the client, we have 25 days left to make and communicate the decision.”

Easy, really.

See also

References

  1. And you should, just for the perverse satisfaction of knowing you have initiated a petulant war between the broker’s legal and credit teams about whose job it is to prepare and send the NAV trigger waiver. On a day when your fund is tanking, take a moment to enjoy the little pleasures life offers.
  2. A credit officer may well think this but will never say it.