Cross Default - ISDA Provision: Difference between revisions

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.

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.