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''This article is specifically about the {{isdaprov|Cross Default}} provision in the {{isdama}}. See: [[cross default]] for a general discussion of the concept. | ''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, default by a party | Under the {{isdama}}, if the cross default applies, default by a party under a contract for “{{isdaprov|Specified Indebtedness}}” with a third party in an amount above the “{{isdaprov|Threshold}}” is an {{isdaprov|Event of Default}} under the {{isdama}}. | ||
{{isdaprov|Specified Indebtedness}} is | {{isdaprov|Specified Indebtedness}} is generally any [[borrowed money|money borrowed]] from any third party (e.g. bank debt; [[deposits]], loan facilities etc.). The {{isdaprov|Threshold}} is usually defined as a cash amount or a percentage of shareholder funds. Some parties will try to widen this: do your best to resist that. The threshold will be big: this needs to be a life-threatening number. Expect to see 2-3% of shareholder funds, or USD 100,000,000: sums of that order. | ||
{{isdaprov|Cross default}} | {{isdaprov|Cross default}} imports all the default rights under the {{isdaprov|Specified Indebtedness}} into the {{isdama}}. For example, if a loan facility contains a financial covenant and you breach it, '''even if the lender of the facility does not act on the breach''' your swap counterparty could close you out. Cross default is theoretically, a very dangerous provision. Financial reporting dudes get quite worked up about it. | ||
===Cross Aggregation=== | ===Cross Aggregation=== |