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Amwelladmin (talk | contribs) (Created page with "====Types of Events of Default==== =====Independently verifiable===== Some {{isdaprov|Events of Default}} you can independently verify without counterparty's confirmation, for...") |
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=====Independently verifiable===== | =====Independently verifiable===== | ||
Some {{isdaprov|Events of Default}} you can independently verify without counterparty's confirmation, for example: | Some {{isdaprov|Events of Default}} you can independently verify without counterparty's confirmation, for example: | ||
*'''Direct breaches''': direct breaches of the Agreement (eg {{isdaprov|Failure | *'''Direct breaches''': direct breaches of the Agreement (eg {{isdaprov|Failure to Pay}}; {{isdaprov|Breach of Agreement}}); | ||
*'''Public events''': Events which are necessarily public (most of the {{isdaprov|Bankruptcy}} limbs; {{isdaprov|Merger Without Assumption}} | *'''Public events''': Events which are necessarily public (most of the {{isdaprov|Bankruptcy}} limbs; {{isdaprov|Merger Without Assumption}} | ||
=====Not independently verifiable===== | =====Not independently verifiable===== | ||
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*{{isdaprov|Cross Default}} | *{{isdaprov|Cross Default}} | ||
*other limbs of {{isdaprov|Bankruptcy}} (eg "has a secured party take possession of all or substantially all its assets". | *other limbs of {{isdaprov|Bankruptcy}} (eg "has a secured party take possession of all or substantially all its assets". | ||
=====“Hard” {{isdaprov|Events of | =====“Hard” {{isdaprov|Events of Default}}===== | ||
Hard events where some positive action has actually been taken representing a default - such as a {{isdaprov|Failure to Pay}} | Hard events where some positive action has actually been taken representing a default - such as a {{isdaprov|Failure to Pay}} | ||
=====“Soft” or “Passive” Events of Default===== | =====“Soft” or “Passive” {{isdaprov|Events of Default}}===== | ||
Where a state of affairs has arisen ''permitting'' a hard {{isdaprov|Event of Default}} to be called, but it has not been designated it happened, such as {{isdaprov|Cross Default}}, where person owning the actual "hard" default right against your counterparty may not have triggered (or have any intention of triggering) it. | Where a state of affairs has arisen ''permitting'' a hard {{isdaprov|Event of Default}} to be called, but it has not been designated it happened, such as {{isdaprov|Cross Default}}, where person owning the actual "hard" default right against your counterparty may not have triggered (or have any intention of triggering) it. | ||
That said, and for the same reason, such "not independently verifiable" termination/default events are effectively soft anyway, even where we have such an obligation from counterparty to notify us of their occurrence, because we have no means of policing whether or not the Counterparty has in fact notified us, and therefore no practical remedy anyway if it does not. It is a self certification, after all, and all we can rely on is its moral force and the party's competence to monitor its own position and be sufficiently organised to tell us. | That said, and for the same reason, such "not independently verifiable" termination/default events are effectively soft anyway, even where we have such an obligation from counterparty to notify us of their occurrence, because we have no means of policing whether or not the Counterparty has in fact notified us, and therefore no practical remedy anyway if it does not. It is a self certification, after all, and all we can rely on is its moral force and the party's competence to monitor its own position and be sufficiently organised to tell us. | ||
Additionally, the obligation on a | Additionally, the obligation on a counterparty to monitor "passive" {{isdaprov|Events of Default}} like {{isdaprov|Cross Default}} (as opposed to [[cross acceleration]] where [[QED]] a defaulting party will be notified about the occurrence) is a pretty onerous one particularly for a large entity, and even more so where (as they often are for funds) derivatives are included in definition of {{isdaprov|Specified Indebtedness}}. | ||
Given that cross defaults may have artificially low {{isdaprov|Threshold Amount}}s (as do some of ours) and are set at levels where actual counterparties owning those rights directly are most unlikely to exercise them, it should not be a surprise to find parties resistant to notifying us about these. | Given that [[cross default|cross defaults]] may have artificially low {{isdaprov|Threshold Amount}}s (as do some of ours) and are set at levels where actual counterparties owning those rights directly are most unlikely to exercise them, it should not be a surprise to find parties resistant to notifying us about these. | ||
This becomes a credit call but a practical recommendation would be: | This becomes a credit call but a practical recommendation would be: | ||