What Is Event of Default?
An event of mặc định is a predefined circumstance that allows a lender to lớn demvà 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 lớn protect itself in case it appears that the borrower will not be able khổng lồ or does not intover to lớn continue repaying the loan in the future. An sự kiện of default enables the lender to lớn seize any collateral that has been pledged & sell it khổng lồ recoup the loan. This often is employed if the default risk is beyond a certain point.
Bạn đang xem: Event of default là gì
Understanding Events Of Default
An "event of default" is a defined term in loan và lease agreements. The following would constitute a mặc định event 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 to lớn invoke its rights in the sự kiện of mặc định. These events would be custom-tailored for the chất lượng situation of the borrower. Although a creditor can legally demvà immediate repayment in the sự kiện of a mặc định, in practice it rarely does so. Instead, it usually works with the distressed borrower khổng lồ rewrite the terms of the loan agreement. If the parties agree, the lender will produce an amendment to lớn the loan agreement that contains tighter terms, & in most cases, raise the interest rate of the loan và collect an amendment fee.
Example of an Event of Default
On January 10, 2018, Sears Holdings Corp. entered inlớn 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 and restrictive because the lending syndicate is taking extra precaution to protect its interests.
Event of Default in Credit Default Swaps
The three most common such events, as defined by theInternational Swaps & Derivatives Association (ISDA), are 1) filing for bankruptcy, 2) defaulting on payment, & 3) restructuring debt. Less comtháng credit events are obligation default, obligation acceleration, andrepudiation/ moratorium.