82,891
edits
Template:M summ 2002 ISDA 5(a)(vi): Difference between revisions
Template:M summ 2002 ISDA 5(a)(vi) (view source)
Revision as of 10:43, 29 September 2023
, 29 September 2023no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 1: | Line 1: | ||
===General=== | ===General=== | ||
{{isdaprov|Cross Default}} is intended to cover off the unique risks associated with ''lending money to counterparties who have also borrowed heavily from other people''. | {{isdaprov|Cross Default}} is intended to cover off the unique risks associated with ''lending money to counterparties who have also borrowed heavily from other people''. Now, if — as starry-eyed young [[credit officer]]s in the thrall of the moment like to — you apply this thinking to contractual relationships which aren’t “[[term loan]]y” in nature — that is, having long spells where one party is deeply in the hole to the other, and there is not so much as an incoming interest payment due over a period of months to trigger any acceleration — it will give you trouble. | ||
Under the {{isdama}}, default by a swap counterparty on “{{isdaprov|Specified Indebtedness}}” with a third party in an amount above the “{{isdaprov|Threshold Amount}}” is an {{isdaprov|Event of Default}} under the {{isdama}} — even though the counterparty might be fully up to date with all covenants under the {{isdama}} itself. {{isdaprov|Cross Default}} thus imports the default rights from some contract the counterparty has given away to some third party random — in fact ''all'' default rights it has given away to ''any'' randoms — into your {{isdama}}. For example, if you breach a financial covenant in your [[revolving credit facility]] with some other [[bank]], an entirely different swap counterparty could close you out ''even if your bank lender didn’t''. | Under the {{isdama}}, default by a swap counterparty on “{{isdaprov|Specified Indebtedness}}” with a third party in an amount above the “{{isdaprov|Threshold Amount}}” is an {{isdaprov|Event of Default}} under the {{isdama}} — even though the counterparty might be fully up to date with all covenants under the {{isdama}} itself. {{isdaprov|Cross Default}} thus imports the default rights from some contract the counterparty has given away to some third party random — in fact ''all'' default rights it has given away to ''any'' randoms — into your {{isdama}}. For example, if you breach a financial covenant in your [[revolving credit facility]] with some other [[bank]], an entirely different swap counterparty could close you out ''even if your bank lender didn’t''. | ||