Template:M gen 2002 ISDA 3(b): Difference between revisions

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Adding potential events of default is onerous, 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. Yes, it is in the {{isdama}}.
Adding potential events of default is onerous, 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. Yes, it is in the {{isdama}}.
===“... 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 an {{isdama}} with me?'' Well, remember the [[ISDA]]’s lineage. It was crafted, before the alliance of men and elves, by the {{cotw}}. 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.

Latest revision as of 10:16, 21 March 2023

“...or potential event of default”

Adding potential events of default is onerous, especially if it is a continuous representation, as it deprives the representor of grace periods it has carefully negotiated into its other payment obligations. Yes, it is in the ISDA Master 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 ISDA Master Agreement with me? Well, remember the ISDA’s lineage. It was crafted, before the alliance of men and elves, by the Children of the Woods. They were a species of pre-derivative, banking people. It is possible they had in mind the sort of restrictive covenants 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 Cross Default: Suffice, here, to say that an ISDA isn’t “borrowed money”[1] 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.

Much more likely is a negative pledge, and while an unsecured, title-transfer, close-out netted ISDA might not offend one of those, a Pledge GMSLA might, and a prime brokerage agreement may well do.

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.

  1. ↑ Unless your credit team decided to define it as such, of course. It does happen.
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