Events of Default and Early Refinancing

What this video covers

• The full list of standard events of default, including the non-payment triggers the exam loves to test: material adverse change (MAC), Employee Retirement Income Security Act (ERISA) pension events, and bankruptcy filings
• Why a bankruptcy filing is automatic default with zero grace period, even if every payment is current on the day of filing
• The critical distinction between cross-default (instant domino effect across all debt) and cross-acceleration (only triggers if the other lender actually accelerates first, making it borrower-friendlier)
• Why change of control is typically a put right or mandatory prepayment trigger, not a true event of default, unless the company fails to honor the put
• The most immediate practical effect of default: frozen revolving credit facility draws, not acceleration, because borrowers lose liquidity the moment they cannot certify no default exists
• How make-whole premiums compensate lenders for the net present value (NPV) of remaining interest, typically discounted at a benchmark Treasury rate plus a spread, versus the much smaller soft-call premium for early repayment in the first 6-12 months
• Why discounted debt-for-debt exchanges generate cancellation of indebtedness income (CODI), creating an unexpected tax liability that can blindside companies in out-of-court restructurings