Obligation Default - Credit Derivatives Provision

2014 ISDA Credit Derivatives Definitions A Jolly Contrarian owner’s manual™ 4.4 in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. 4.4 in all its glory Section 4.4 Obligation Default. “Obligation Default” means one or more Obligations in an aggregate amount of not less than the Default Requirement have become capable of being declared due and payable before they would otherwise have been due and payable as a result of, or on the basis of, the occurrence of a default, event of default or other similar condition or event (however described), other than a failure to make any required payment, in respect of the Reference Entity under one or more Obligations. edit Resources and Navigation Resources (full wikitext) | (nutshell wikitext) | Anatomy | Narrowly-tailored credit event | Equity v credit derivatives showdown Index: Click ᐅ to expand: Credit Derivatives Premium version of this page

Overview

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The obvious comparison here is with “Cross Default” in the ISDA Master Agreement. Both are a “default” and not an “acceleration” trigger, both reference a threshold (for the ISDA, Threshold Amount; for the CDS, Default Requirement)

Differences:

Obligation: The CDS concept of “obligation” is adjustable: “Payment”, covering any payment obligation whether or not in the nature of borrowed money being a lot wider than the ISDA’s Specified Indebtedness, and “Reference Obligation Only” caputring only a specific instrument being a lot narrower.

Credit Support Provider: CDS does not independently pull in an Obligation guarantor’s general obligations other than those under the Reference Obligations themselves. For example, if a guarantor has, failed to pay its electricity bill but is not in default as guarantor under the Reference Entity’s Obligations — and, by the way, it is not impossible that its failure to pay its own power bill might be a default under an Obligation, but that would depend on the terms of the guarantee in question and is not inevitable — that would not ordinarily trigger a CDS.

Summary

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See also

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