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Cross default: Difference between revisions
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==History== | ==History== | ||
[[Cross default]] developed in the loan market. If a [[lender]] advanced a large sum to a [[borrower]] with only periodic interest or principal repayments, there would be long periods — months | [[Cross default]] developed in the loan market. If a [[lender]] advanced a large sum to a [[borrower]] with only periodic interest or principal repayments, there would be long periods — months; quarters; even ''years'' — where the borrower was not scheduled to make any payments to the lender at all. | ||
Now a borrower that is not due to pay anything, can hardly [[Failure to pay|fail to pay]]. | Now a borrower that is not due to pay anything, can hardly [[Failure to pay|fail to pay]]. Can it? | ||
This presented the lender with a risk: if, in the mean time, his borrower failed to pay under a loan from ''another'' lender, our lender would be in a difficult spot: it has good reason to think the borrower is in trouble, but the borrower hasn’t missed any payments — how could it? ''None were due''. Waiting for the next payment to see if the borrower will meet it, won’t do. Our borrower wants to accelerate its loan ''now'' — ideally, before the other lender accelerates its loan: Our lender wants to get in while the going is still tolerably good. | This presented the lender with a risk: if, in the mean time, his borrower failed to pay under a loan from ''another'' lender, our lender would be in a difficult spot: it has good reason to think the borrower is in trouble, but the borrower hasn’t missed any payments — how could it? ''None were due''. Waiting for the next payment to see if the borrower will meet it, won’t do. Our borrower wants to accelerate its loan ''now'' — ideally, before the other lender accelerates its loan: Our lender wants to get in while the going is still tolerably good. | ||