Q&As

When negotiating a Schedule to an ISDA Master Agreement, does it matter if I specify an event as an Additional Event of Default or Additional Termination Event?

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Published on LexisPSL on 30/03/2016

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • When negotiating a Schedule to an ISDA Master Agreement, does it matter if I specify an event as an Additional Event of Default or Additional Termination Event?
  • What is an Event of Default?
  • What is a Termination Event?
  • Where do I include Additional Termination Events or Additional Events of Default?
  • What are the effects of it being an Additional Termination Event or Additional Event of Default?
  • Notice
  • Early termination amount payable
  • Section 2(a)(iii)
  • Interest payments

Capitalised terms used in this Q&A follow the defined terms used in the ISDA Master Agreement.

What is an Event of Default?

Events of Default are events which give one party the right to terminate any outstanding Transactions under an ISDA Master Agreement. A decision to declare an event as an Event of Default will result in all Transactions between the parties being terminated, not just a Transaction to which a particular default might relate. As a result of such serious consequences, it is no small decision for a Non-defaulting Party to declare an Event of Default.

Events of Default are set out in Section 5(a) of the ISDA Master Agreement. These are:

  1. Failure to Pay or Deliver

  2. Breach or Repudiation of Agreement

  3. Credit Support Default

  4. Misrepresentation

  5. Default under Specified Transaction

  6. Cross Default

  7. Bankruptcy, and

  8. Merger Without Assumption

What is a Termination Event?

Termination Events also allow the parties to close out Transactions prior to their intended maturity date on the occurrence of an adverse event. Termination events are set out in section 5(b) of the ISDA Master Agreement and comprise of:

  1. Illegality

  2. Force Majeure Event (only applicable if the 2002 ISDA Master Agreement is used)

  3. Tax Event

  4. Tax Event Upon Merger

  5. Credit Event Upon Merger, and

  6. Addition

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