What Is Event of Default?

An event of default is a predefined circumstance that allows a lender to demand full repayment of an outstanding balance before it is due. In many agreements, the lender will include a contract provision covering events of default to protect itself in case it appears that the borrower will n🍌ot be able or does not intend to repay the loan in the future.

An event of default enables the lender to seize any 澳洲幸运5官方开奖结果体彩网:collateral that has been pledged and sell it to recoup the balance of the loan. This often is employed if the 澳洲幸运5官方开奖结果体彩网:default risk is beyond a certain point.

Understanding Events Of Default

An "event of default" is a defined term in loan and lease agreements. The following would constitute a default event in a typical credit agreement clause:

• non-payment of any amount of the loan (including interest)
• financial covenant breach
• material representation inaccuracy or warranty breach
• 澳洲幸运5官方开奖结果体彩网:cross-default
• material adverse change (MAC)
• insolvency

The clause can contain more circumstances that would permit the creditor to invoke its rights in the event of default. These events would be custom-tailored for the unique situation of the borro൲wer.

Although a creditor can legally demand immediate repayment in the event of a default, in practice it rarely does. Instead, it usually works with the distressed borrower to rewrite the terms of the loan agreement. If the parties agree, the lender will produce an 澳洲幸运5官方开奖结果体彩网:amendment to the loan agreement that contains tighter terms, and in most cases, raise the interest rate of the l𓆏oan and collect an amen🌳dment fee.

Example of an Event of Default

On January 10, 2018, Sears Holdings Corp. entered into a $100 million t🍎erm loan credit agreement with various lenders. Section 7.01 listed 11 different events of default for the struggling retailer.

Unambiguous terms are customary in a properly-drafted credit agreement; however, the agreement for Sears was exceptionally detailed and restrictive because the lending 澳洲幸运5官方开奖结果体彩网:syndicate took e♔xtra precautions to protect its interests.

Event of Default in Credit Default Swaps

A credit default swap (CDS) is an agreement between parties in which one pays to the other party a premium for a type of credit default insurance, which protects against certain defaults. In essence, the buyer is taking out a form of 澳洲幸运5官方开奖结果体彩网:insurance on t💎he possibility that a debtor will experien𒅌ce an event of default event that would jeopardize its ability to meet its payment obligations.

The Interna𝄹ti🙈onal Swaps and Derivatives Association (ISDA) published a master agreement to govern over-the-counter (OTC) derivative transactions. The contract lists and defines eight standard events of default for which the agreement may be terminated:

• Failure to pay or deliver
• Breach/repudiation of agreement
• Credit support default
• Misrepresentation
• Default under specified transaction
• Cross-default
• 澳洲幸运5官方开奖结果体彩网:Bankruptcy
• Merger without assumption.