Cross Default - ISDA Provision: Difference between revisions

Cross Default - ISDA Provision (view source)

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 ''This article is specifically about the {{isdaprov|Cross Default}} provision in the {{isdama}}. See: [[cross default]] for a general discussion of the concept.
-Under the {{isdama}}, if the cross default applies, default by a party of a payment under “{{isdaprov|Specified Indebtedness}}” in an amount above an agreed “{{isdaprov|Threshold}}” will entitle the other party to {{isdaprov|close out}} the {{isdama}}.
+Under the {{isdama}}, if the cross default applies, default by a party under a contract for “{{isdaprov|Specified Indebtedness}}” with a third party in an amount above the “{{isdaprov|Threshold}}” is an {{isdaprov|Event of Default}} under the {{isdama}}.
-{{isdaprov|Specified Indebtedness}} is a claim against a party (by any third party) for [[borrowed money]] (e.g. bank debt; [[deposits]] etc.) and the {{isdaprov|Threshold}} which triggers it is usually defined as a cash amount or a percentage of shareholder funds. Some parties will try to widen this: do your best to resist that.
+{{isdaprov|Specified Indebtedness}} is generally any [[borrowed money|money borrowed]] from any third party (e.g. bank debt; [[deposits]], loan facilities etc.). The {{isdaprov|Threshold}} is usually defined as a cash amount or a percentage of shareholder funds. Some parties will try to widen this: do your best to resist that. The threshold will be big: this needs to be a life-threatening number. Expect to see 2-3% of shareholder funds, or USD 100,000,000: sums of that order.
-{{isdaprov|Cross default}} effectively imports all the default rights you might have given a third party under the {{isdaprov|Specified Indebtedness}} into the {{isdama}}. For example, if you breach a financial covenant in a loan facility, '''even if the lender of the facility does not act on the breach''' your swap counterparty would be entitled to terminate the ISDA Master even though the ISDA Master itself contained no financial covenants.
+{{isdaprov|Cross default}} imports all the default rights under the {{isdaprov|Specified Indebtedness}} into the {{isdama}}. For example, if a loan facility contains a financial covenant and you breach it, '''even if the lender of the facility does not act on the breach''' your swap counterparty could close you out. Cross default is theoretically, a very dangerous provision. Financial reporting dudes get quite worked up about it.
 ===Cross Aggregation===