Event of default là gì

Adam Hayes is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics & behavioral finance. Adam received his master's in economics from The New School for Social Research và his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7 & 63 licenses. He currently researches and teaches at the Hebrew University in Jerusalem.

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Charles is a nationally recognized capital markets speciadanh mục và educator who has spent the last three decades developing in-depth training programs for burgeoning financial professionals.

What Is Event of Default?

An event of mặc định is a predefined circumstance that allows a lender to dem& 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 lớn protect itself in case it appears that the borrower will not be able to or does not intover khổng lồ continue repaying the loan in the future. An event of mặc định enables the lender to lớn seize any collateral that has been pledged và sell it lớn recoup the loan. This often is employed if the default risk is beyond a certain point.

An sự kiện of mặc định is a pre-specified condition or threshold that, if met, allows the lender or creditor to demvà immediate & full repayment of a debt or obligation.An sự kiện of mặc định may include delinquent or non-payment of principal or interest due, a breach of a bond covenant, or insolvency, aao ước others.Credit mặc định swaps (CDS) contain specific events of mặc định that can trigger one counterparty khổng lồ the contract khổng lồ pay up to the other.

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Understanding Events Of Default

An "sự kiện of default" is a defined term in loan và 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)material representation inaccuracy or warranty breachmaterial adverse change (MAC)insolvency

The clause can contain more circumstances that would permit the creditor khổng lồ invoke its rights in the event of default. These events would be custom-tailored for the quality situation of the borrower. Although a creditor can legally demvà immediate repayment in the event of a mặc định, 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 to lớn the loan agreement that contains tighter terms, & 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 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 sầu 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 lớn protect its interests.

Event of Default in Credit Default Swaps

A credit default swap (CDS) is a transaction in which one party, the "protection buyer," pays the other buổi tiệc ngọt, the "protection seller," a series of payments over the term of the agreement. In essence, the buyer is taking out a khung ofinsuranceon the possibility that a debtor will experience an event of mặc định event that would jeopardize its ability lớn meet its payment obligations.

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 common credit events are obligation mặc định, obligation acceleration, andrepudiation/ moratorium.