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Events of Default - ISDA Provision: Difference between revisions
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Events of Default - ISDA Provision (view source)
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**other limbs of {{isdaprov|Bankruptcy}} (eg "has a secured party take possession of all or substantially all its assets". | **other limbs of {{isdaprov|Bankruptcy}} (eg "has a secured party take possession of all or substantially all its assets". | ||
*'''"Hard" Events of default''': Hard events where some positive action has actually been taken representing a default - such as a {{isdaprov|Failure to Pay}} | *'''"Hard" Events of default''': Hard events where some positive action has actually been taken representing a default - such as a {{isdaprov|Failure to Pay}} | ||
*'''"Soft" or "Passive" Events of Default''': where a state of affairs has arisen permitting a Hard Event of Default to come about, but one has not necessarily happened, such as {{isdaprov|Cross Default}}, where the third party owning the actual "Hard" Default right may not have triggered it (and may have no intention of triggering it). | *'''"Soft" or "Passive" Events of Default''': where a state of affairs has arisen permitting a Hard {{isdaprov|Event of Default}} to come about, but one has not necessarily happened, such as {{isdaprov|Cross Default}}, where the third party owning the actual "Hard" Default right may not have triggered it (and may have no intention of triggering it). | ||
That said, and for the same reason, such "not independently verifiable" termination/default events are effectively soft anyway, even where we have such an obligation from counterparty to notify us of their occurrence, because we have no means of policing whether or not the Counterparty has in fact notified us, and therefore no practical remedy anyway if it does not. It is a self certification, after all, and all we can rely on is its moral force and the party's competence to monitor its own position and be sufficiently organised to tell us. | That said, and for the same reason, such "not independently verifiable" termination/default events are effectively soft anyway, even where we have such an obligation from counterparty to notify us of their occurrence, because we have no means of policing whether or not the Counterparty has in fact notified us, and therefore no practical remedy anyway if it does not. It is a self certification, after all, and all we can rely on is its moral force and the party's competence to monitor its own position and be sufficiently organised to tell us. | ||
Additionally, the obligation on a Counterparty to monitor "passive" Events of Default like Cross Default (as opposed to [[cross acceleration]] where QED a defaulting party will be notified about the occurrence) is a pretty onerous one particularly for a large entity, and even more so where (as they often are for funds) derivatives are included in definition of {{isdaprov|Specified indebtedness}}. | Additionally, the obligation on a Counterparty to monitor "passive" {{isdaprov|Events of Default}} like {{isdaprov|Cross Default}} (as opposed to [[cross acceleration]] where [[QED]] a defaulting party will be notified about the occurrence) is a pretty onerous one particularly for a large entity, and even more so where (as they often are for funds) derivatives are included in definition of {{isdaprov|Specified indebtedness}}. | ||
Given that cross defaults may have artificially low {{isdaprov|Threshold Amount}}s (as do some of ours) and are set at levels where actual counterparties owning those rights directly are most unlikely to exercise them, it should not be a surprise to find parties resistant to notifying us about these. | Given that cross defaults may have artificially low {{isdaprov|Threshold Amount}}s (as do some of ours) and are set at levels where actual counterparties owning those rights directly are most unlikely to exercise them, it should not be a surprise to find parties resistant to notifying us about these. | ||