Credit mitigation: Difference between revisions

Jump to navigation Jump to search
no edit summary
(Created page with "The controversial protections in master trading agreements are there for one reason: To stop you losing money. They’re “''credit mitigants''”: ====...")
 
No edit summary
Line 1: Line 1:
The controversial protections in master trading agreements are there for one reason: To stop you losing money. They’re “''[[credit mitigant|credit mitigants]]''”:
The controversial protections in master trading agreements are there for one reason: To stop you losing money. They’re “''[[credit mitigant|credit mitigants]]''”:
====[[Event of default|Events of default]]====
====[[Event of default|Events of default]]====
*If a party [[failure to pay|fails to pay]] or deliver things it owes under the agreement
*'''Direct [[Failure to pay]]''': If a party [[failure to pay|fails to pay]] or deliver things it owes under the agreement
*Things that increase the likelihood that the party will be unable to do so in the future:
*'''Indirect credit issues''': Things that increase the likelihood that the party will be unable to do so in the future:
**The party goes [[insolvent]] (or gets close to it)
**'''[[Bankruptcy]]''': The party goes [[insolvent]] (or gets close to it)
**The party’s credit ratings are materially prejudiced (via a merger)
**'''Credit impairment''': The party’s [[credit rating]]s are prejudiced (via a merger)
**The party materially defaults on its contracts with other counterparties  
**'''[[Cross default]]''': The party breaches important obligations owed to other counterparties  
*Things that undermine the comfort you took as to the party’s creditworthiness:
*'''[[Misrepresentation]]''': Things that tend to undermine the comfort you took as to the party’s creditworthiness at the outset of the arrangement, such as representations and warranties no longer being true.
**Representations and warranties the party gave turn out not to be true
*'''[[Credit support provider]] issues''': similar things happening to the counterparty’s named guarantors or [[credit support provider]]s.
*Any of these things happen with respect to guarantors or [[credit support provider]]s.
These [[events of default]] live in the pre-printed the agreement, and tend not to be negotiated (except perhaps [[cross-default]], and that's a whole different story).
====[[Additional termination events]]====
We also throw in customised “[[additional termination event|additional termination events]]” tailored to the idiosyncrasies of each counterparty. For example, for [[hedge fund]]s we may require “key person” events allowing termination if named individuals cease to be associated with the fund; [[NAV trigger]]s granting close-out rights related to significant decreases in the [[net asset value]] of the fund.
 
These customised events tend to be more controversial and more complicated: [[NAV trigger]]s may be set at different thresholds over different periods
 
====Margin====
Master trading agreements also have less invasive means of mitigating

Navigation menu