01 Jan 2001, Energy Risk glossary , Energy Risk
The risk that a counterparty’s performance obligations will be unenforceable because:
1) the underlying transaction documentation is inadequate;
2) the counterparty lacks the requisite authority or is subject to legal transaction restrictions;
3) the underlying transaction is impermissible under applicable law or regulations; or
4) applicable bankruptcy or insolvency law or regulations limit or alter contractual remedies. It also is intended to cover the risk of mandated regulatory compliance.