Clause primer
Cross-default and cross-acceleration clause
It makes a default under the borrower's other debt an event of default under this agreement, either when that default occurs (cross-default) or only once the other debt is accelerated (cross-acceleration).
Legal information, not legal advice. What a clause does depends on its exact words, the rest of the agreement and the governing law.
Also called: cross-default, cross-acceleration, cross-default event of default. Where you find it: Credit agreements, note purchase agreements, indentures, ISDA and other derivatives documents, receivables purchase agreements and guarantees.
SAMPLE CLAUSE (INVENTED FOR THIS PRIMER)
An Event of Default occurs if the Borrower or any Material Subsidiary (a) fails to pay any principal or interest on any Indebtedness (other than the Obligations) having an aggregate principal amount above $10,000,000 when due, after any applicable grace period, or (b) defaults under any agreement governing such Indebtedness, and as a result that Indebtedness becomes due before its stated maturity, or the holders of it become entitled to declare it due before its stated maturity.
How it works
Who is covered
Naming material subsidiaries extends the clause across the group. Check the definition of "Material Subsidiary" and whether guarantors and joint ventures are included.
Threshold
The dollar threshold keeps small disputes from causing a default on the main facility. Check whether it is measured per debt or in aggregate and how non-U.S. currency is converted.
Payment default
Part (a) applies when the borrower misses a payment on other debt after any grace period. The words "after any applicable grace period" give the borrower the benefit of the other agreement's cure time.
Acceleration or right to accelerate
Part (b) is where the two versions split. "Becomes due" is cross-acceleration and requires actual acceleration; "become entitled to declare" is a true cross-default and applies as soon as the other creditors have the right, even if they waive or never use it.
Why it is there
The clause lets a lender act at the same time as the borrower's other creditors, so it is not left waiting while others enforce, renegotiate or take security. A lender with a later maturity or weaker covenants would otherwise lose its place in any restructuring. Cross-acceleration is the narrower form and protects the borrower against a cascade of defaults caused by a technical breach that the other creditor has chosen to waive.
How it works with other clauses
- The definition of "Indebtedness" controls which obligations count, including whether guarantees, hedging, capital leases and receivables financings are included.
- Grace periods and cure rights in the other agreement interact with the timing of the default here.
- A waiver or amendment obtained from the other creditor may or may not cure the default under this agreement; the drafting should say so expressly.
- Derivatives documents use a similar clause with a threshold set in the schedule.
Negotiating it
Who it protects: Lenders, noteholders and purchasers
If it protects you
- Prefer the "entitled to declare" wording, which applies before the other creditors act.
- Keep the threshold aggregate across all debt and set at a level relevant to the credit.
- Include guarantees and hedging obligations in the definition of debt.
If it runs against you
- Standard ask: cross-acceleration only, so a waived or uncalled default elsewhere does not count; fallback is cross-default for payment defaults and cross-acceleration for all others.
- Ask for a meaningful threshold and an express statement that a cure or waiver under the other agreement also cures the default here.
- Exclude debt being contested in good faith and debt of non-material subsidiaries.
Escalate before accepting: A full cross-default with no threshold and no cure-by-waiver language, because any technical breach anywhere in the group could put every facility at risk at once.
What AI explanations get wrong
- Calling every version "cross-default" and missing the difference from cross-acceleration. Check whether the operative words require actual acceleration or only a right to accelerate.
- Ignoring the threshold measurement. Check whether it is per instrument or aggregate, and whether it includes undrawn commitments or hedging exposure.
- Treating a waiver by the other creditor as automatically curing this default. Check for an express cure provision.
- Overlooking that the clause can reach subsidiary and guarantor debt. Check the entities named.
Where the law varies
Courts generally enforce these clauses as written, but how a waiver, cure or rescission of acceleration elsewhere affects the default depends on the drafting and governing law. Bankruptcy law may limit enforcement once a case is filed.
TOOLS
Need a primer like this for a clause in front of you? The Clause Primer Kit, included in All-access, produces one in this format inside the AI tool you already use, with checks built in. For reviewing whole agreements, see the Agent Kit 1: Contract Review and Negotiation.