Absence of Certain Events - 1992 ISDA Provision

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1992 ISDA Master Agreement

A Jolly Contrarian owner’s manual™

3(b) in a Nutshell

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Original text

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.
See ISDA Comparison for a comparison between the 1992 ISDA and the 2002 ISDA.
The Varieties of ISDA Experience
Subject 2002 (wikitext) 1992 (wikitext) 1987 (wikitext)
Preamble Pre Pre Pre
Interpretation 1 1 1
Obligns/Payment 2 2 2
Representations 3 3 3
Agreements 4 4 4
EODs & Term Events 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityFMTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSTCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUMATE 5 Events of Default: FTPDBreachCSDMisrepDUSSCross DefaultBankruptcyMWA Termination Events: IllegalityTax EventTEUMCEUM
Early Termination 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculations; Payment DatePayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ETSet-off 6 Early Termination: ET right on EODET right on TEEffect of DesignationCalculationsPayments on ET
Transfer 7 7 7
Contractual Currency 8 8 8
Miscellaneous 9 9 9
Offices; Multibranch Parties 10 10 10
Expenses 11 11 11
Notices 12 12 12
Governing Law 13 13 13
Definitions 14 14 14
Schedule Schedule Schedule Schedule
Termination Provisions Part 1 Part 1 Part 1
Tax Representations Part 2 Part 2 Part 2
Documents for Delivery Part 3 Part 3 Part 3
Miscellaneous Part 4 Part 4 Part 4
Other Provisions Part 5 Part 5 Part 5

Resources and Navigation

Index: Click to expand:

Comparisons

No change from 1992 ISDA to 2002 ISDA.

Basics

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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  • JC’s “nutshell” summary of the clause
  • Background reading and long-form essays
    • “... 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

References

  1. I know, I know.