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

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. Is it 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.  This seems to be reaching, though, readers: it talks of defaults under ''this'' agreement not another one — widenibng that would drastically amplify the already ludicrous risk posed by the {{isdaprov|Cross Default}} clause.

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.