What Is Event of Default?
An sự kiện of mặc định is a predefined circumstance that allows a lender lớn dem& full repayment of an outstanding balance before it is due. In many agreements, the lender will include a contract provision covering events of mặc định to lớn protect itself in case it appears that the borrower will not be able to or does not intkết thúc khổng lồ continue repaying the loan in the future. An sự kiện of mặc định enables the lender lớn seize any collateral that has been pledged & sell it lớn recoup the loan. This often is employed if the default risk is beyond a certain point.
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Understanding Events Of Default
An "sự kiện of default" is a defined term in loan and lease agreements. The following would constitute a default sự kiện in a typical credit agreement clause:non-payment of any amount of the loan (including interest)material representation inaccuracy or warranty breachmaterial adverse change (MAC)insolvency
The clause can contain more circumstances that would permit the creditor lớn invoke its rights in the event of default. These events would be custom-tailored for the chất lượng situation of the borrower. Although a creditor can legally demvà immediate repayment in the event of a default, in practice it rarely does so. 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 amendment khổng lồ the loan agreement that contains tighter terms, và in most cases, raise the interest rate of the loan and collect an amendment fee.
Example of an Event of Default
On January 10, 2018, Sears Holdings Corp. entered into lớn a $100 million term loan credit agreement with various lenders. Section 7.01 comprises 11 different events of mặc định, including the ones cited above except MAC, for the struggling retailer. Unambiguous terms are customary in a properly-drafted credit agreement, but the agreement for Sears is particularly detailed và restrictive because the lending syndicate is taking extra precaution to protect its interests.
Event of Default in Credit Default Swaps
The three most comtháng such events, as defined by theInternational Swaps và Derivatives Association (ISDA), are 1) filing for bankruptcy, 2) defaulting on payment, & 3) restructuring debt. Less common credit events are obligation default, obligation acceleration, andrepudiation/ moratorium.