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Cross Default - ISDA Provision: Difference between revisions
Cross Default - ISDA Provision (view source)
Revision as of 17:04, 4 December 2015
, 4 December 2015→The difference between the two formulations
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* 2002 formulation talks about default under agreements where the “aggregate principal amount” of the agreements is not less than the Threshold Amount. | * 2002 formulation talks about default under agreements where the “aggregate principal amount” of the agreements is not less than the Threshold Amount. | ||
This is a seemingly innocuous change intended to clarify a drafting | This is a seemingly innocuous change intended to clarify a drafting lapses that: | ||
*It can be triggered by any event of default justifying acceleration, not just a payment default (ie "a default... in an amount equal to..." impliedly limits the clause to payment defaults only) | |||
*It captures the whole size of the Agreement, not just the value of the defaulted payment. If, for example, you defaulted on a (relatively small) interest payment on a loan, which then made the whole loan repayable, under the 1992 formulation you could only count the value of the defaulted interest payment to your threshold, when in reality the whole size of the loan is in jeopardy, and really should have been what was counted. | |||
It is innocuous, that is, unless you are cavalier enough to include derivatives in your definition of {{isdaprov|Specified Indebtedness}}. But if you do that, you've bought yourself a wild old ride anyway. | |||
In case it isn't clear, Cross Default is intended to cover off the unique risks associated with material debt. If you try - as starry eyed credit officers like to - to apply it to contractual relationships which aren't debtor/creditor in nature, it will give you gyp. | |||
Don't say you weren't warned. | |||
====Aggregation of limbs (1) and (2)==== | ====Aggregation of limbs (1) and (2)==== | ||