A provision/ clause a default in a loan, bond, or swap agreement that triggers default in another. The provision states that any default on a loan or swap, that is part of an issue, will be treated as a default on the entire issue. Cross default may also be stipulated as to a debtor: default on a personal loan would trigger a default on the debtor’s mortgage loan.
Broadly speaking, an event of default that hits one instance will impact or carry over to another (or other instances). Cross default is used in complex dealings or transactions where a breach in one would render another as in breach.
In borrowing documentation, cross default provisions allow creditors to request repayment if a borrower defaults on one of his/ her/ its obligations. It sets in motion a series of “triggered” defaults as a means by which a creditor can be protected from actions favoring another credit (or other creditors).
