Events of Default - ISDA Provision: Difference between revisions

Events of Default - ISDA Provision (view source)

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 {{isdaprov|5(a)(viii)}} {{isdaprov|Merger without Assumption}}<br>
 {{comm}}
-===={{isdaprov|Additional Events of Default}}====
-Note that additional events of default may be set out in Part 5 of the [[ISDA Schedule]].
-===={{isdaprov|Illegality}}====
-{{isdaprov|Illegality}} trumps {{isdaprov|Event of Default}}. Be careful where, for example, a {{isdaprov|Failure to Pay}} is occasioned by a mandatory change in law by a government having jurisdiction over one or other counterparty - see {{isdaprov|Illegality}}. Good example: Greek capital controls of June 2015.
-===={{isdaprov|Termination Events}} and {{isdaprov|Events of Default}}====
-{{isdaprov|Termination Events}} and {{isdaprov|Events of Default}} under an {{isdama}} are similar in that when they occur to one party (the {{isdaprov|Affected Party}} or {{isdaprov|Defaulting Party}}) the other may terminate outstanding trades under the agreement. Differences:
-*'''Events of Default''': As the word "default" implies EODs are treated as the ''fault'' the defaulting party and may give rise to third-party default rights (where the relevant {{isdaprov|Cross Default}} extends to derivatives and trading documents);
-*'''Termination Events''': There is less "moral turpitude" associated with a Termination Event under an {{isdama}}, and they will generally not trigger Cross Defaults (not amounting to "defaults".
 {{eventsofdefault}}
 ====Types of Events of Default====
-Events of Default can be categorised:
+'''Independently Verifiability''': Some {{isdaprov|Events of Default}} you can independently verify without counterparty's confirmation, for example:
-*'''Independently Verifiable''': Some by their nature can independently verified without affirmation from the counterparty, particularly:
+**'''Direct breaches''': direct breaches of the Agreement (eg {{isdaprov|Failure To Pay}}; {{isdaprov|Breach of Agreement}});
-**'''Direct Breaches''': direct breaches of the Agreement (eg {{isdaprov|Failure To Pay}}; {{isdaprov|Breach of Agreement}});
+**'''Public events''': Events which are necessarily public (most of the {{isdaprov|Bankruptcy}} limbs; {{isdaprov|Merger Without Assumption}}
-**'''Public Actions''': Events which are necessarily public (most of the {{isdaprov|Bankruptcy}} limbs; {{isdaprov|Merger Without Assumption}}
+*'''Not independently verifiable''': Some require the counterparty to tell you as they depend on facts which you could not know are not public knowledge, are not breaches of a direct obligation to the counterparty and would not otherwise come to the firm's attention: Particularly:
-*'''Not independently verifiable''': Others require acknowledgement or notice from the counterparty as they may depend on states of affairs which are not public knowledge, are not breaches of a direct obligation to the counterparty and would not otherwise come to the firm's attention: Particularly:
 **{{isdaprov|Cross Default}}
 **other limbs of {{isdaprov|Bankruptcy}} (eg "has a secured party take possession of all or substantially all its assets".
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 #Impose notification requirement only on "active" termination/default events which are non-public and CP has no excuse for not having monitored them and counterparty has actually exercised; and
 #If that doesn't work, agree to drop the provision altogether, as in my view its practical utility is limited to "moral" at best (as there is no effective sanction for counterparty breach anyway)
+===={{isdaprov|Illegality}}====
+{{isdaprov|Illegality}} trumps {{isdaprov|Event of Default}}. Be careful where, for example, a {{isdaprov|Failure to Pay}} is occasioned by a mandatory change in law by a government having jurisdiction over one or other counterparty — see {{isdaprov|Illegality}}. Good example: Greek capital controls of June 2015.
+===={{isdaprov|Termination Events}} and {{isdaprov|Events of Default}}====
+{{isdaprov|Termination Events}} and {{isdaprov|Events of Default}} under an {{isdama}} are similar in that when they occur to one party (the {{isdaprov|Affected Party}} or {{isdaprov|Defaulting Party}}) the other may terminate outstanding trades under the agreement. Differences:
+*'''Events of Default''': As the word "default" implies EODs are treated as the ''fault'' the defaulting party and may give rise to third-party default rights (where the relevant {{isdaprov|Cross Default}} extends to derivatives and trading documents);
+*'''Termination Events''': There is less "moral turpitude" associated with a Termination Event under an {{isdama}}, and they will generally not trigger Cross Defaults (not amounting to "defaults".
 {{isdaanatomy}}
 *[[Soft Events of Default]]