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Cross default: Difference between revisions
→Cross default in the loan market
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[[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. | [[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]]. | ||
This presented our lender with a risk: if, in the meantime, the 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 pay won’t do. Our borrower wants to accelerate its loan ''now'' — while the going is still tolerably good. | This presented our lender with a risk: if, in the meantime, the 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 pay won’t do. Our borrower wants to accelerate its loan ''now'' — while the going is still tolerably good. | ||