Potential Event of Default - ISDA Provision

2002 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Potential Event of Default 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. Potential Event of Default in all its glory “Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. edit Related agreements and comparisons Click here for the text of Section Potential Event of Default in the 1992 ISDA Template:Isdadiff Potential Event of Default Resources and Navigation This provision in the 1992 Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project Navigation Preamble | 1 • (a) (b) (c) | 2 • (a) (b) (c) (d) | 3 • (a) (b) (c) (d) (e) (f) (g) | 4 • (a) (b) (c) (d) (e) | 5 • 5(a) Events of Default: 5(a)(i) Failure to Pay or Deliver 5(a)(ii) Breach of Agreement 5(a)(iii) Credit Support Default 5(a)(iv) Misrepresentation 5(a)(v) Default Under Specified Transaction 5(a)(vi) Cross Default 5(a)(vii) Bankruptcy 5(a)(viii) Merger Without Assumption 5(b) Termination Events: 5(b)(i) Illegality 5(b)(ii) Force Majeure Event 5(b)(iii) Tax Event 5(b)(iv) Tax Event Upon Merger 5(b)(v) Credit Event Upon Merger 5(b)(vi) Additional Termination Event (c) (d) (e) | 6 • (a) (b) (c) (d) (e) (f) | 7 | 8 • (a) (b) (c) (d) | 9 • (a) (b) (c) (d) (e) (f) (g) (h) | 10 | 11 | 12 • (a) (b) | 13 • (a) (b) (c) (d) | 14 | Index: Click ᐅ to expand: 2002 ISDA 1992 ISDA Premium version of this page

Overview

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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

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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.

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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

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See also

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• Events of Default under the ISDA Master Agreement
• Grace period