Absence of Certain Events - ISDA Provision
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 a misrepresentation that there has been no breach of that contract.
Can you understand the rationale for this representation? Sure.
Does it do any practical good? No.
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.
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.
- 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?
- No default or potential event of default in general.
- Representations and Warranties Anatomy
- Negative pledge
- I know, I know.