Absence of Certain Events - 1992 ISDA Provision

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ISDA Text: 3(b)

3(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.

Related agreements and comparisons

Related Agreements
Click here for the text of Section 3(b) in the 2002 ISDA
Click to compare this section in the 1992 ISDA and 2002 ISDA.

Resources and Navigation

Resources Wikitext | Nutshell wikitext | 2002 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA

Navigation Preamble | 1(a) (b) (c) | 2(a) (b) (c) (d) (e) | 3(a) (b) (c) (d) (e) (f) | 4(a) (b) (c) (d) (e) | 55(a) Events of Default: 5(a)(i) Failure to Pay or Deliver 5(a)(ii) Breach of Agreement 5(a)(iii) Credit Support Default 5(a)(iv) Misrepresentation 5(a)(v) Default Under Specified Transaction 5(a)(vi) Cross Default 5(a)(vii) Bankruptcy 5(a)(viii) Merger Without Assumption 5(b) Termination Events: 5(b)(i) Illegality 5(b)(ii) Tax Event 5(b)(iii) Tax Event Upon Merger 5(b)(iv) Credit Event Upon Merger 5(b)(v) Additional Termination Event (c) | 6(a) (b) (c) (d) (e) | 7 | 8(a) (b) (c) (d) | 9(a) (b) (c) (d) (e) (f) (g) | 10 | 11 | 12(a) (b) | 13(a) (b) (c) (d) | 14 |

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No change from 1992 ISDA to 2002 ISDA.



Can you understand the rationale for this representation? Sure.

Does it do any practical good? No.

It is a warranty, not a representation

A standard, but useless, contractual warranty. It can’t be a pre-contractual representation, of course, because the very idea of an “event of default” depends for its intellectual existence on the conclusion of the contract in which it is embedded. So, it won’t really do to argue there should be no contract, on grounds of the false representation that a contract that does not exist has not been breached.

It is paradoxes all the way down

A No EOD rep is a classic loo paper rep: soft, durable, comfy, absorbent — super cute when a wee Labrador pub grabs one end of the streamer and charges round your Italian sunken garden with it — but as a credit mitigant or a genuine contractual protection, only good for wiping your behind on.

Bear in mind you are asking someone — on pain of them being found in fundamental breach of contract — to swear to you they are not already in fundamental breach of contract. Now, how much comfort can you genuinely draw from such promise? Wouldn’t it be better if your credit team did some cursory due diligence to establish, independently of the say-so of the prisoner in question, whether there are grounds to suppose it might be in fundamental breach of contract?

Presuming there are not — folks tend not to publicise their own defaults on private contracts, after all — the real question here is, “do I trust my counterparty?” And to that question, any answer provided by the person whose trustworthiness is in question, carries exactly no informational value. All cretins are liars.[1]

So, let’s say it turns out your counterparty is lying; there is a pending private event of default it knew about and you didn’t. Now what are you going to do? Righteously detonate your contract on account of something of which by definition you are ignorant?

Have fun, counsellor.

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  • The JC’s famous Nutshell summary of this clause
  • “... or Potential Event of Default” — and why this can run a truck over your carefully negotiated grace periods
  • “... or would occur as a result of entering into this agreement” — say, what is that all about?

See also



  1. I know, I know.