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{{a|banking|}}“'''Borrowed money'''” — often confused with [[indebtedness]], although indebtedness is a wider concept — is a term of art used in financial contracts. It is a key part of the definition of {{isdaprov|Specified Indebtedness}} in the {{isdama}}, which in turn is a key part of the definition of {{isdaprov|Cross Default}}. | {{a|banking|}}“'''Borrowed money'''” — often confused with [[indebtedness]], although indebtedness is a wider concept — is a term of art used in financial contracts. It is a key part of the definition of {{isdaprov|Specified Indebtedness}} in the {{isdama}}, which in turn is a key part of the definition of {{isdaprov|Cross Default}}. | ||
“Borrowed money” is money another person paid you ''a propos'' nothing except the expectation that you will, at some point, pay it back. Your obligation to repay is a form of “indebtedness” to the lender. Indebtedness can arise without borrowed money, however: ''any'' legally binding obligation to pay another person a sum of money, however it arose, is [[indebtedness]]. Trade debts; tax [[liabilities]], swap payments: all are types of indebtedness. | |||
In the [[capital structure]], [[unsecured]] [[borrowed money]] ranks equally (''[[pari passu]]'', in the lingo) with all unsecured payment obligations to creditors in the insolvency of the company that owes it, and ahead of amounts owed to shareholders, preferential shareholders and holders of [[subordinated debt]]. | In the [[capital structure]], [[unsecured]] [[borrowed money]] ranks equally (''[[pari passu]]'', in the lingo) with all unsecured payment obligations to creditors in the insolvency of the company that owes it, and ahead of amounts owed to shareholders, preferential shareholders and holders of [[subordinated debt]]. | ||
Borrowed | ===Borrowed money and [[cross default]]=== | ||
Borrowed money is the main difference in scope between {{isdaprov|Cross Default}} and {{isdaprov|Default under Specified Transaction}} — the former includes it, the latter (unless you monkey around with your definition) does not. | |||
Are {{t|stock loan}}s and {{t|repo}} trades “[[borrowed money]]”? The term is not generally defined: you are expected to know it when you see it. Quoth that sage old ''eminence gris'', Simon Firth, in his book [http://www.amazon.co.uk/Derivatives-Law-Practice-Simon-Firth/dp/0421830204 Derivatives Law and Practice]: | |||
{{quote|“Borrowed money” ... means money which has been paid on the basis that it is to be repaid at a future date. ''It therefore excludes amounts that are due to ordinary trade creditors and financing arrangements (such as [[repo]]s and the discounting of bills of exchange)''.}} | |||
Mr Firth cites {{Casenote|Transport & General Credit Corp.|Morgan}} [1939] CH 531 as authority for this point. But there's a better reason: because of their respective collateral structures — both are daily [[Margin call|margined]] with a small [[haircut]] — neither involved significant indebtedness. The {{gmslaprov|Borrower}} of a [[stock loan]] typically gives up more in value of {{gmslaprov|Collateral}} than she “borrows” in stock. She isn’t ''really'' a borrower. | Mr Firth cites {{Casenote|Transport & General Credit Corp.|Morgan}} [1939] CH 531 as authority for this point. But there's a better reason: because of their respective collateral structures — both are daily [[Margin call|margined]] with a small [[haircut]] — neither involved significant indebtedness. The {{gmslaprov|Borrower}} of a [[stock loan]] typically gives up more in value of {{gmslaprov|Collateral}} than she “borrows” in stock. She isn’t ''really'' a borrower. | ||