No event of default or potential event of default: Difference between revisions

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No event of default or potential event of default (view source)

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Adding [[potential event of default|''potential'' events of default]] is onerous — or would be if it weren’t simply preposterous, per the above — especially if it is a continuous representation, as it deprives the representor of [[grace period]]s it has carefully negotiated into its other payment obligations. Besides the sorts of obligations that have grace periods — usually payment and delivery obligations, are ones which you don’t need the other guy to own up to you about, because you can see for yourself that you haven’t been paid. Remember the point of representations is to attest to things you could not reasonably find out by yourself.
Adding [[potential event of default|''potential'' events of default]] is onerous — or would be if it weren’t simply preposterous, per the above — especially if it is a continuous representation, as it deprives the representor of [[grace period]]s it has carefully negotiated into its other payment obligations. Besides the sorts of obligations that have grace periods — usually payment and delivery obligations, are ones which you don’t need the other guy to own up to you about, because you can see for yourself that you haven’t been paid. Remember the point of representations is to attest to things you could not reasonably find out by yourself.
===“... or would occur as a result of entering into this agreement”===  
===“... or would occur as a result of entering into this agreement”===  
A curious confection, you might think: ''what sort of [[event of default]] could a fellow trigger merely by entering into an {{isdama}} with me?'' Well, remember the [[ISDA]]’s lineage. It was crafted, before the alliance of men and elves, by the [[Children of the Forest]]. They were a species of pre-derivative, banking people. It is possible they had in mind the sort of [[restrictive covenant]]s a banker might demand of a borrower with a look of softness about its credit standing: perhaps a promise not to create material [[indebtedness]] to another lender, though in these enlightened times that would be a great constriction indeed on a fledgling enterprise chasing the world of opportunity that lies beyond its door.  
A curious confection, you might think: ''what sort of [[event of default]] could a fellow trigger merely by entering into contract with me?'' But yet there it is, slap dab in the middle of the {{isdama}}. What could they have been thinking?  
 
Well, remember the [[ISDA]]’s lineage. It was crafted, before the alliance of men and elves, by the [[Children of the Forest]]. They were a species of pre-derivative, banking people. It is possible they had in mind the sort of [[restrictive covenant]]s a banker might demand of a borrower with a look of softness about its credit standing: perhaps a promise not to create material [[indebtedness]] to another lender, though in these enlightened times that would be a great constriction indeed on a fledgling enterprise chasing the world of opportunity that lies beyond its door.  


So, does a swap [[mark-to-market]] [[exposure]] count as [[indebtedness]]? Many will recognise this [[tedious]] question as one addressed at great length when contemplating a {{isdaprov|Cross Default}}: Suffice, here, to say that an ISDA isn’t “[[borrowed money]]”<ref>Unless your credit team decided to define it as such, of course. It does happen.</ref> as such, but a material swap exposure would have the same credit characteristics as indebtedness. But in these days of compulsory [[variation margin]] you wouldn’t expect one’s [[mark-to-market]] [[exposure]] to ''be'' material, unless something truly cataclysmic was going on intra-day in the markets.
So, does a swap [[mark-to-market]] [[exposure]] count as [[indebtedness]]? Many will recognise this [[tedious]] question as one addressed at great length when contemplating a {{isdaprov|Cross Default}}: Suffice, here, to say that an ISDA isn’t “[[borrowed money]]”<ref>Unless your credit team decided to define it as such, of course. It does happen.</ref> as such, but a material swap exposure would have the same credit characteristics as indebtedness. But in these days of compulsory [[variation margin]] you wouldn’t expect one’s [[mark-to-market]] [[exposure]] to ''be'' material, unless something truly cataclysmic was going on intra-day in the markets.
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But still, nonetheless, see above: if it does, and your counterparty has fibbed about it, all you can do is get out your tiny violin.
But still, nonetheless, see above: if it does, and your counterparty has fibbed about it, all you can do is get out your tiny violin.
{{sa}}
{{sa}}
*[[Children of the Forest]]
*The [[First Men]]
*[[Negative pledge]]
*[[Negative pledge]]
{{ref}}
{{ref}}
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