Template:Isda Threshold Amount summ: Difference between revisions
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Because of the [[snowball effect]] that a {{tag|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. | Because of the [[snowball effect]] that a {{tag|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. | ||
Revision as of 12:45, 23 June 2023
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.