Template:Isda 5(a) summ

{{{{{1}}}|Events of Default}} can generally be contrasted with {{{{{1}}}|Termination Event}}s. They tend to be more focused on the outright creditworthiness of the Defaulting Party: whether it could, even if it wanted to, perform its obligations. {{{{{1}}}|Termination Events}} on the other hand tend to be extraneous factors preventing a party from continuing the contract (Or making the contract uneconomic) even though it has the financial resources to do so.

The broad thrust of the {{{{{1}}}|Events of Default}} is:

1. Direct failures under the Master Agreement itself: Direct contraventions of the ISDA Master Agreement itself and its {{{{{1}}}|Transaction}}s by one of the principals to the contract. Within here we have:
   1. {{{{{1}}}|Failure to Pay}}, which became {{{{{1}}}|Failure to Pay or Deliver}} when the cash-only 1987 ISDA gave way to the broader range of non-cash underlying assets under the 1992 ISDA;
   2. {{{{{1}}}|Breach of Agreement}}: Breach of any obligation other than a payment or delivery obligation
   3. {{{{{1}}}|Misrepresentation}}: Breach of any cross-my-heart-and-hope-to-die sort of precontractual representation made undere the contract
   4. {{{{{1}}}|Credit Support Default}}: Failure to provide collateral under a Credit Support Document. While in ordinary banking world a credit support obligation would generally be provided by someone other than a party to the contract. This is not so on Planet ISDA: (some) CSAs and CSDs are “Credit Support Documents”. So this counts as these are mainly principal obligations of the parties themselves (though of course end users will often be guaranteed).

2. Direct failures under other Agreements: Direct contraventions by parties to the ISDA Master Agreement of other contractual obligations that are sufficiently serious to make the Non-Defaulting Party freak under the ISDA Master Agreement. Within this bucket we have:

   1. {{{{{1}}}|Default under Specified Transaction}}: The {{{{{1}}}|Defaulting Party}} fails directly to the {{{{{1}}}|Non-Defaulting Party}} to perform under a swap-like transaction, only one that is not documented under the ISDA Master Agreement itself, but under a different master trading agreement;
   2. {{{{{1}}}|Cross Default}}: The {{{{{1}}}|Defaulting Party}} fails directly to the {{{{{1}}}|Non-Defaulting Party}} to perform to someone else altogether under a loan-like Transaction, over a certain {{{{{1}}}|Threshold}};

3. Unacceptable credit deterioration: The {{{{{1}}}|Defaulting Party}} or its third-party {{{{{1}}}|Credit Support Provider}}s suffers a dramatic non-transactional reversal of fortunes such that the Non-Defaulting Party has credible doubts it will ever see its net in-the-money positions realised, whether or not they are currently in-the-money. Into this bucket goes:

   1. {{{{{1}}}|Bankruptcy}}: The Defaulting Party suffers one of the many different ways a merchant can go titten hoch. There are a lot of them, and they are fraught;
   2. {{{{{1}}}|Merger Without Assumption}}: The {{{{{1}}}|Defaulting Party}} is somehow taken over, reincorporated, reconstituted through a corporate event or otherwise magicked into a spiritual realm in which its earthly debts and obligations are not taken up by whomever the resulting entity is.

   {{{{{1}}}|Events of Default}} by nature, speak to fundamental and time-honoured verities of the financial system, so it should not be a great surprise that they have not really changed throughout the three major versions of the ISDA Master Agreement. Honourable mention should also go to the {{{{{1}}}|Additional Termination Event}}s that credit department will insist on shoehorning into the schedule in a bid to stay relevant: while these are not Events of Default as such, they tend to have a same credit-related quality to them