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Event of default: Difference between revisions
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{{a|glossary| | {{a|glossary| | ||
[[File:Default in our Stars.png|450px|thumb|center|Look, ''you'' try illustrating the idea of default.]] | [[File:Default in our Stars.png|450px|thumb|center|Look, ''you'' try illustrating the idea of default.]] | ||
}} | }}An [[event of default]] is an action a counterparty takes which justifies the innocent party terminating the contract ''under its terms'', [[close out|closing out]] open transactions, and raining down fiery hell on the wronger and its affiliates, directors, officers, employees, agents and delegates. | ||
====Not (quite) the same as a breach of contract==== | |||
An Event of Default has a different consequence to a [[repudiatory breach|repudiatory, or fundamental, breach]] of contract, even though the two are largely the same, and a “repudiation of contract” may even be characterised as an [[event of default]]. | |||
{{Event of default vs fundamental breach}} | {{Event of default vs fundamental breach}} | ||
====Not the same as an Enforcement Event==== | |||
Especially where the obligation in question is a [[repackaging]], [[securitisation]] or [[asset-backed security]], but even where it is not, an Event of Default is ''not'' the same as an “[[enforcement event|Enforcement Event]]”. Enforcement is the exercise of ones security rights under a security interest granted as credit support to the obligation. There are many reasons why, even upon an event of default, one might not want to enforce security, but in the case of an [[SPV]], generally enforcing the security won’t do anything, because the diminution in value of the creditors claim will be to the secured assets themselves, not the solvency of the vehicle holding them so the presence or absence of the security is rather beside the point. More in our article on [[enforcing security]]. | |||
===Under the [[master agreements|master trading agreements]]=== | ===Under the [[master agreements|master trading agreements]]=== | ||
There is specific idiosyncratic lore attaching to the events of default under differing market standard master agreements, so go with alacrity to: | There is specific idiosyncratic lore attaching to the events of default under differing market standard master agreements, so go with alacrity to: | ||