Lender’s failure to deliver Equivalent Collateral - GMSLA Provision
Commentary
The GMSLA is deliberately designed so that the return of Equivalent Securities, or the return of Equivalent Collateral, is not an Event of Default.
These failures are designed to be caught by the Mini-Closeout section, which gives the party expecting the redelivery a self-help, pre-default, remedy of buying in, liquidating Securities or Collateral that it holds, valuing the offsetting positions and calling for a cash payment. A failure to make that payment would be an Event of Default (under 10.1(c)).
The deficiency seems to be in not allowing for the 9.2 close out right to attach to failures to return Collateral during the currency of a loan. I am not sure why that is missing, but it seems to me the correct approach should be to amend 9.2 to say:
“If Lender fails to deliver Equivalent Collateral comprising Non Cash Collateral in accordance with paragraph 5.4, 8.4 or 8.5…”
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