Cross Default - ISDA Provision: Difference between revisions

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 ===The difference between the two formulations===
 ====Measure of the Threshold====
-* 1992 formulation talks about an default under an agreement “in an aggregate amount not less that the ... Threshold Amount which results in the Specified Indebtedness becoming due and payable”,
+*{{1992ma}} formulation contemplates default ''in an aggregate '''amount''''' exceeding the {{isdaprov|Threshold Amount}} which would justify early termination of the {{isdaprov|Specified Indebtedness}} - that is to say the defaulted payment contributes to the Threshold Amount, not the principal amount of the Specified Indebtedness itself;
-* 2002 formulation talks about default under agreements where the “aggregate principal amount” of the agreements is not less than the Threshold Amount.
+*{{2002ma}} formulation contemplates an event of default under agreements whose “aggregate principal amount” is not less than the Threshold Amount - that is to say it is the principal amount of the Agreement which is picked up, not just the amount of the payment.
-This is a seemingly innocuous change intended to clarify a drafting lapses that:
+This change, we speculate, is meant to fix a howler of a drafting lapse:
-*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 can be triggered by any [[event of default]], not just a payment default (I.e. the 1992 wording "''an event of 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 captures the whole size of the {{isdaprov|Specified Indebtedness}}, not just the value of the defaulted payment (if it even ''is'' a payment) itself.
-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.
+For example: if you defaulted on a (relatively small) interest payment, which made the whole loan repayable, under the 1992 formulation you could only count the value of the missed interest payment to your Threshold Amount. But the risk to you ise whole size of the loan, as that is what could become repayable if the loan is accelerated.
-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.
+It is innocuous, that is, unless you are cavalier enough to include ''derivatives or other payments which are not debt-like'' 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, {{isdaprov|Cross Default}} is intended to cover off the unique risks associated with ''lending money to counterparties who have also borrowed heavily from other people''. 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.