Talk:Consequences of an Event of Default - GMSLA Provision

Nutshell 2010

11. Consequences of an Event of Default 11.1: If an Event of Default happens to either Party: 11.2 The Parties’ obligations will be accelerated as at the Event of Default (the Termination Date) as follows: (a) The Non-Defaulting Party will determine the Default Market Value of all amounts (and securities) due by each Party under paragraph 11.4 as at the Termination Date. (b) The Non-Defaulting Party will convert all sums into the Base Currency at the prevailing Spot Rate and then set off the resulting sums against each other and the out-of-the-money Party will pay the balance to the in-the-money Party on the following Business Day. (c) and (d) [(d) being the vice-versa] If that balance is payable by a Party who had delivered a Letter of Credit to the other Party the other Party must draw on the Letter of Credit to settle the amount due and then deliver it for cancellation. 11.3 The Default Market Value of a Letter of Credit will be zero. For any Equivalent Securities or any other Equivalent Non-Cash Collateral it will be determined under paragraphs 11.4 to 11.6 below, where: (a) the Appropriate Market is the most appropriate market for any securities determined by the Non Defaulting Party; (b) the Default Valuation Time means the close of business in the Appropriate Market on the fifth dealing day after (i) the Event of Default or, (ii) in the case of Automatic Early Termination, the Non Defaulting Party became aware of it; (c) Deliverable Securities means Equivalent Securities or Equivalent Non-Cash Collateral to be delivered by the Defaulting Party; (d) Net Value means at any time, in relation to any Deliverable Securities or Receivable Securities, the amount which the Non Defaulting Party reasonably considers to be their fair market value, plus or minus all reasonably anticipated Transaction Costs; (e) Receivable Securities means Equivalent Securities or Equivalent Non-Cash Collateral to be delivered to the Defaulting Party; and (f) Transaction Costs means the reasonable costs and expenses reasonably anticipated in buying Deliverable Securities or selling Receivable Securities, assuming that the aggregate is the least that could reasonably be expected to be paid in order to carry out the transaction. 11.4 If between the Termination Date and the Default Valuation Time: (a) Actual sale or purchase: the Non-Defaulting Party (NDP) has sold Securities/Collateral equivalent to those it is owed by the Defaulting Party; or bought Securities/Collateral equivalent to those it owes the Defaulting Party; it may treat the Default Market Value as the net sale proceeds or aggregate purchase cost of the relevant sale or purchase. (b) Reference market quotes: the NDP has received: offer quotations for Securities/Collateral equivalent to those it is owed by the Defaulting Party; or bid quotations for Securities/Collateral equivalent to those it owes the Defaulting Party; from two or more market makers in a commercially reasonable size (as determined by the NDP) it may elect to treat as the Default Market Value the arithmetic mean of those prices quoted adjusted in a commercially reasonable manner by the NDP to reflect accrued but unpaid coupons plus or minus transaction costs. 11.5. If the Non Defaulting Party (A) cannot buy or sell securities (per 11.4(a)) or obtain quotations (per 11.4(b)); or (B) determines it would not be commercially reasonable to do so (or use any 11.4(b) quotations which did get); it may determine the Net Value of Equivalent Securities or Collateral and treat it as the relevant Default Market Value. 11.6 Where, under 11.4, the Non Defaulting Party has not determined a Default Market Value, it will be an amount equal to the relevant Net Value at the Default Valuation Time. However, if the Non Defaulting Party reasonably determines it is not practicable for it to determine a commercially reasonable Net Value the Default Market Value will be the Net Value it determines as soon as reasonably practicable after the Default Valuation Time. 11.7 Costs and expenses following an Event of Default: The Defaulting Party will be liable for all reasonable professional expenses the Non Defaulting Party incurs because of an Event of Default plus interest at a rate agreed by the Parties or failing that, the overnight LIBOR rate as at 11.00 a.m., London time. Interest will accrue and compound daily. 11.8 Set-off Any amount payable to one Party by the other under 11.2(b) may, at the Non Defaulting Party’s option, be set off against any amount payable the other way round under any other agreement or instrument between the parties. A Non Defaulting Party may estimate any unascertained obligation but must account for any difference once finally ascertained. This paragraph does not create a security interest, or prejudice any other rights either party may have.