The Cross-Default Clause: What It Means and How to Negotiate It (2026)

What is a cross-default clause? A cross-default clause makes a default under one of the borrower's agreements an event of default under this one, even when the borrower is fully performing this loan. It is standard in facility agreements, syndicated loans and bonds. The point is protection against contagion: if a borrower defaults to another lender, this lender wants the right to act at the same time, rather than wait and find itself last in line when the borrower runs into trouble. The clause can be drafted narrowly or very widely, and the difference is the whole negotiation. A wide cross-default can turn a small, technical or disputed default anywhere in the borrower's debt into a default on a large facility. This article is general guidance, not legal advice. Have a qualified professional review a facility agreement before you rely on it. ## Sample cross-default clause ```

CROSS-DEFAULT An Event of Default occurs if: (a) any Financial Indebtedness of the Borrower [or any Group member] is not paid when due, after any applicable grace period; or (b) any such Financial Indebtedness becomes, or is declared, due and payable before its stated maturity as a result of an event of default (however described); or (c) any commitment for Financial Indebtedness is cancelled or suspended by a creditor as a result of an event of default (however described), provided that no Event of Default occurs under this clause if the aggregate amount of the Financial Indebtedness falling within (a) to (c) is less than [threshold amount].

- **Cross-acceleration** is triggered only when the other lender actually accelerates the debt, meaning it formally declares the debt due early. It is narrower and borrower-friendly, because a minor or disputed default elsewhere does not automatically bite. Borrowers generally push to convert a pure cross-default into cross-acceleration. ## A worked example: why the threshold matters Suppose a company has a large term loan and also a small equipment lease, and the lease counts as Financial Indebtedness under the facility. If the company misses a small payment on the lease, a pure cross-default with no threshold could turn that minor slip into an event of default on the whole term loan, letting the lender accelerate a much larger debt. A sensible threshold, an aggregate figure below which the clause does not bite, stops a trivial default elsewhere from triggering the main facility. This is why borrowers negotiate the threshold hard, and also why they seek a carve-out for debts they are disputing in good faith, so that an argument they are genuinely contesting does not count as a default and tip the whole structure over. ## How to negotiate a cross-default clause What a borrower usually seeks: - **Cross-acceleration, not pure cross-default**, so only a real, acted-on default elsewhere triggers this loan.
- **A meaningful threshold (de minimis)**, so small debts do not trip the facility.
- **Aligned grace periods**, so the cross-default does not bite before the underlying default is even mature.
- **Carve-outs** for debt that is the subject of a bona fide dispute, intra-group debt, and trade payables.
- **A tightly defined "Financial Indebtedness"**, because standard market definitions are drafted widely and can catch hedging, leasing and similar arrangements. What a lender usually seeks: - A broad trigger, a low threshold, and a wide definition of Financial Indebtedness, to keep full protection against contagion across the borrower's debt. ## Common mistakes to avoid - No threshold, so a tiny default elsewhere can trip a large loan.
- A "Financial Indebtedness" definition so wide it unintentionally catches hedging, finance leases or ordinary trade credit.
- A grace period mismatch, so the cross-default bites before the underlying obligation is actually in default.
- No carve-out for genuinely disputed debts, so a dispute the borrower is contesting in good faith can still trigger default. ## A note on jurisdiction Cross-default is a global feature of lending documentation. In the UK and much of Europe, facility agreements commonly follow Loan Market Association (LMA) forms, whose definition of Financial Indebtedness is drafted widely, which is why thresholds and carve-outs matter so much. Indian facility agreements use similar mechanics. Enforcement of a cross-default and any acceleration interacts with insolvency law, and in India with the Insolvency and Bankruptcy Code, 2016. Always check the clause against the actual form you are working from, including its threshold, grace period and definitions. Varies by jurisdiction. Last verified October 2026. ## Where a contract workspace helps A cross-default clause ties one agreement to every other debt in a borrower's stack, and that is easy to miss when each facility lives in a different folder: a wide Financial Indebtedness definition here, a low threshold there, a grace period that does not line up. The idea worth holding onto is that drafting, reviewing, tracking and governing a borrower's agreements can live in one AI workspace tuned to your company, where each one is read as connected clauses and a cross-default with no threshold stands out before it bites. [Adira](https://adiralaw.com) is one example of a tool built around a single workspace. The explanation above stands on its own; a workspace simply makes the links between agreements easier to see.