Template:Isda Threshold Amount summ: Difference between revisions
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===={{isdaprov|Threshold Amount}}==== | ====={{isdaprov|Threshold Amount}}===== | ||
The {{isdaprov|Threshold Amount}} is a key feature of the {{isdaprov|Cross Default}} {{isdaprov|Event of Default}} in the {{isdama}}. It is the level over which accumulated [[indebtedness]] defaults comprise an {{isdaprov|Event of Default}}. It is usually defined as a [[cash]] amount or a percentage of [[Tier 1 capital|shareholder funds]], or both, in which case — [[Trick for young players|schoolboy error]] hazard alert — be careful to say whether it is the greater or lesser of the two. | The {{isdaprov|Threshold Amount}} is a key feature of the {{isdaprov|Cross Default}} {{isdaprov|Event of Default}} in the {{isdama}}. It is the level over which accumulated [[indebtedness]] defaults comprise an {{isdaprov|Event of Default}}. It is usually defined as a [[cash]] amount or a percentage of [[Tier 1 capital|shareholder funds]], or both, in which case — [[Trick for young players|schoolboy error]] hazard alert — be careful to say whether it is the greater or lesser of the two. | ||
Because of the [[snowball effect]] that a | Because of the [[snowball effect]] that a [[cross default]] clause can have on a party’s insolvency it should be big: like, [[bankruptcy|life-threateningly]] big — because the consequences of triggering a {{isdaprov|Cross Default}} are dire, and it may create its own chain reaction beyond the ISDA itself. So expect to see, against a [[swap dealer]], 2-3% of shareholder funds, or sums in the order of hundreds of millions of dollars. For [[end users]] the number may well be a lot lower (especially for thinly capitalised investment vehicles like [[Hedge fund|fund]]s — like, ten million dollars or so — and, of course, will key off [[NAV]], not shareholder funds. | ||
Latest revision as of 13:30, 14 August 2024
Threshold Amount
The Threshold Amount is a key feature of the Cross Default Event of Default in the ISDA Master Agreement. It is the level over which accumulated indebtedness defaults comprise an Event of Default. It is usually defined as a cash amount or a percentage of shareholder funds, or both, in which case — schoolboy error hazard alert — be careful to say whether it is the greater or lesser of the two.
Because of the snowball effect that a cross default clause can have on a party’s insolvency it should be big: like, life-threateningly big — because the consequences of triggering a Cross Default are dire, and it may create its own chain reaction beyond the ISDA itself. So expect to see, against a swap dealer, 2-3% of shareholder funds, or sums in the order of hundreds of millions of dollars. For end users the number may well be a lot lower (especially for thinly capitalised investment vehicles like funds — like, ten million dollars or so — and, of course, will key off NAV, not shareholder funds.