Module 3 · Chapter 10

Events of Default

Clause 19 lists the events that let the lenders demand their money back early. This chapter explains each event, how the lenders call in the loans, and why they usually agree a waiver instead.

≈ 12 min read 8-question test

In this chapter

  • How a breach becomes an Event of Default, and when it stops counting
  • The nine events of default in clause 19, and what softens each one
  • How the lenders call in the loans, and why they rarely do

10.1Events of default in one paragraph

A facility agreement is full of promises, and clause 19 says what happens when the borrower breaks one. It lists nine events of default. While one of them is continuing, the lenders may cancel the facilities and demand all the loans back at once. This is called acceleration.

Most events carry a softener, such as a grace period or a minimum amount. The softeners are where the two sides negotiated.

Key point

When trouble appears, answer three questions in this order: is it a Default, has it become an Event of Default, and is it still continuing? A continuing Default is enough to stop new loans. Only a continuing Event of Default lets the lenders accelerate.

Also in this chapter

  1. How a breach climbs the ladder
  2. The nine events and what softens them
  3. Late payment and broken promises
  4. Cross-default: trouble under another loan
  5. Material adverse change: pointed more often than used
  6. How the lenders call in the loans
  7. What usually happens instead
  8. Your job

Preview

The rest of this chapter opens with a free account. Every edition is free to read until 31 January. Open a free account by the end of that day and keep every edition published by then, for good. Open it from the edition home →