NAV trigger: Difference between revisions

{{a|pb|{{image|Trigger|jpg|A [[NAV trigger]] yesterday.}} }}{{NAV trigger capsule}}

All rather tiresome, and quite unnecessary if you have the right, as most [[prime broker]]s do, to hike up [[initial margin]] at your discretion.<ref>I know, I know, there may be a [[margin lockup]]. That’s really the best place for the [[NAV trigger]], as you may come to agree if you read on.</ref>

===Types of [[NAV trigger]]===

Often there are three levels of trigger: '''Monthly'''; '''Quarterly''' and '''Annually'''. There is also an “absolute” NAV trigger, judged from the inception of the relationship to the current point in time, though the sense this one presumably makes to the [[Worshipful Company of Credit Officers]], has for many years eluded the [[JC]]. In any case you may find yourself in a [[tedious]] argument about whether your periodic NAV triggers should be “rolling” (that is, judged for the period from any day, even one on which there wasn’t an official NAV) or “point-to-point” (that is, judged between NAV calculation periods), which is more observable, being based on official NAV, but still arbitrary, as it gives you just a once-a-month opportunity to create a stink.<ref>Then again, you could make the point that cutting an official NAV once a month also gives one a somewhat arbitrary sense of the fund’s performance, as it does not track intra-month volatility.</ref>

Even though [[NAV trigger|NAV triggers]] aren’t usually monitored, they can lead to the tedious cottage industry of [[waiver|waiving]] their breach. This is because while a [[prime broker]]’s [[credit department]] won’t have the inclination (or bandwidth) to monitor the thousands of NAV triggers it has buried in its contract portfolio, each [[hedge fund]] who has granted one will and, if<ref>''When''.</ref> it suffers a significant drawdown, won’t like an unexploded {{isdaprov|Additional Termination Event}} sitting on its conscience. So, it will ask for a [[waiver]]. If it has clever lawyers, it will explain that it has heightened [[cross default]] risk as a result. It may insist on one, even though you would think it ought to be in no position to be insisting anything.  

{{maxim|No no-one likes to give a free waiver}}. Why would you?

Yet, thanks to the [[no oral modification]] clause in Section {{isdaprov|9(b)}} — which extends to waivers — you ''must'' waive a [[NAV trigger]] in writing.<ref>This has been recently confirmed in {{casenote|Rock Advertising Limited|MWB Business Exchange Centres Limited}}.</ref> This then leads to an argument between [[legal]] and [[credit ]] as to ''whose job it is to send out this waiver''. Honestly, this is such fun.

'''[[Legal]]''': “You imposed the stupid [[NAV trigger]], so you can damn well send out waivers for it.” <br>

You’ll never guess where the [[JC]]’s sympathies lie. By the way, [[Waiver by estoppel|waiving]] a [[breach of contract]] under [[English law]], without [[consideration]], is unlikely to permanently change your contractual terms for the worse<ref>See [[waiver by estoppel]] and [[no oral modification]] for a more developed discussion.</ref> — a motivating fear of all [[legal eagles]] and [[credit officers]] — but may well do, if you are not careful, under the [[New York law|laws of the State of New York]]<ref>See [[course of dealing]].</ref> as it may create a [[course of dealing]].

===So, put the NAV trigger in a [[margin lockup]]===

Presuming you have reserved the right, as any sensible [[prime broker]] will, to increase [[initial margin]] at any time, there is a way out of this. It ought to work perfectly well, though [[credit]] won’t like it: ''put [[NAV trigger]]s in the [[margin lockup]] and not the [[master agreement]].  

(Why won’t [[credit ]] like it? ''Because it means they won’t have anything to do''.)

“But I don’t want to have a [[margin lockup]] just so I can have my [[NAV trigger]]”, your credit will wail.  

 

{{sa}}