Credit mitigation

The controversial protections in master trading agreements are there for one reason: To stop you losing money. They’re “credit mitigants”:

Events of default

• If a party fails to pay or deliver things it owes under the agreement
• Things that increase the likelihood that the party will be unable to do so in the future:
  • The party goes insolvent (or gets close to it)
  • The party’s credit ratings are materially prejudiced (via a merger)
  • The party materially defaults on its contracts with other counterparties
• Things that undermine the comfort you took as to the party’s creditworthiness:
  • Representations and warranties the party gave turn out not to be true
• Any of these things happen with respect to guarantors or credit support providers.