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{{fullanatopen|isda|{{nuts|2002 ISDA|Cross Default}}}}{{fullanat2|isda|5(a)(vi)|2002|5(a)(vi)|1992}}{{DUST and Cross Default Comparison}} | {{fullanatopen|isda|{{nuts|2002 ISDA|Cross Default}}}}{{fullanat2|isda|5(a)(vi)|2002|5(a)(vi)|1992}} | ||
===General=== | |||
''This article is specifically about the {{isdaprov|Cross Default}} provision in the {{isdama}}. See: [[cross default]] for a general discussion of the concept. | |||
Under the {{isdama}}, if the cross default applies, the occurrence with respect to a party of a payment default under, or other circumstance that could result in the early termination of, {{isdaprov|Specified Indebtedness}} above an agreed {{isdaprov|Threshold}} will give the other party the right to terminate transactions under the ISDA Master. | |||
Specified Indebtedness is usually defined to any claim against a party (by any third party) for [[borrowed money]] (e.g. bank debt; [[deposits]] etc.) and the {{isdaprov|Threshold}} which triggers it is usually defined as a cash amount or a percentage of shareholder funds. | |||
If the cross default applies, the terms of any {{isdaprov|Specified Indebtedness}} owed by the counterparty above the {{isdaprov|Threshold Amount}} are, in effect, indirectly incorporated into the {{isdama}}. For example, the breach of a financial covenant in a qualifying loan facility, '''even if not acted upon by the lender of that facility''' would give a swap counterparty the right to terminate transactions under the ISDA Master even though the ISDA Master itself contains no financial covenants. | |||
===Cross Aggregation=== | |||
The {{2002ma}} updates the {{1992ma}} cross-default provision so that if the outstanding amount under the 2 limbs of cross-default added together breach the {{isdaprov|Threshold Amount|Threshold Amount}}, then that will trigger cross default. Normally, under the {{1992ma}} , cross-default is only triggered if an amount under one or the other limbs is breached. | |||
As per the above, the two limbs are: | |||
*a default or similar event under financial agreements or instruments that has resulted in indebtedness becoming capable of being accelerated and terminated by a Non-defaulting Party | |||
*a failure to make any payments on their due date under such agreements or instruments after notice or the expiry of a grace period. | |||
{{DUST and Cross Default Comparison}} | |||
===The difference between the two formulations=== | ===The difference between the two formulations=== | ||
====Measure of the Threshold==== | ====Measure of the Threshold==== | ||
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Rather uniquely attention-sapping drafting all round. | Rather uniquely attention-sapping drafting all round. | ||
{{ref}} | {{ref}} |