Potential Event of Default - ISDA Provision
Overview
See especially how the inclusion of Potential Event of Default makes the much talked-about, seldom understood Section 2(a)(iii) condition to payments far more sensitive than it has any right to be.
Summary
A Potential Event of Default is a Failure to Pay or Deliver, Breach of Agreement (or other Event of Default) with an unexpired grace period, or where the grace period has expired but the Non-defaulting Party hasn’t (yet) given a notice of default actually accelerating the default into an actual Event of Default.
That means, 2(a)(iii) defenders, that any formal breach of the ISDA Master Agreement, if notified by the Non-defaulting Party, renders the Section 2(a)(iii) conditions precedent unfulfilled, and means you can suspend performance of your obligations under all outstanding Transactions. I don’t make the rules, folks.
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- The JC’s famous Nutshell™ summary of this clause
- Grace periods and notice requirements for each Event of Default - timing is everything
- Why no-one in their right mind would ever close out an ISDA for breach of agreement
- Grace periods and time being of the essence. Does this introduce a tension? Which gives
- Notice period convolution: beware of dirty pool from the negotiator community