Credit Event - Revision history

DrKazza at 16:34, 16 March 2023

2023-03-16T16:34:41Z

← Older revision		Revision as of 16:34, 16 March 2023
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	After a Credit Event has been confirmed this will then start in place a timeline leading to the [[Auction]] process to determine the final [[Recovery]] price(s).		After a Credit Event has been confirmed this will then start in place a timeline leading to the [[Auction]] process to determine the final [[Recovery]] price(s).

	== Bankruptcy ==
			Originally most contracts were drafted including all Credit Events, with Sovereigns trading with "5CE" - all of the above except Bankruptcy, slowly though the market realised that Repudiation was fairly specific to Sovereigns and Obligation Acceleration would be usually covered by Restructuring and Obligation Default would be covered by Failure to Pay, so only "3CE" were used for Corporates and Financials - Bankruptcy, Failure to Pay and Restructuring. See below for more information about Restructuring amendments.

			=== Bankruptcy ===
	This is the catastrophic failure of a corporate (or financial) firm, this sort of Credit Event doesn't apply to Sovereigns/Countries since there's no concept of a Country going Bankrupt.		This is the catastrophic failure of a corporate (or financial) firm, this sort of Credit Event doesn't apply to Sovereigns/Countries since there's no concept of a Country going Bankrupt.

	This is also one quite a rare Credit Event, usually seen in Asia and Europe because in the US companies will more likely file for Bankruptcy Protection, also known as Chapter 11 and go through a restructuring, but it's not unheard of for a Bankruptcy event to happen.		This is also one quite a rare Credit Event, usually seen in Asia and Europe because in the US companies will more likely file for Bankruptcy Protection, also known as Chapter 11 and go through a restructuring, but it's not unheard of for a Bankruptcy event to happen.

	== Obligation Acceleration ==		=== Obligation Acceleration ===
	This is where a bond, for example, becomes due before it's normal maturity, for example your 30 year bond suddenly becomes a 2 year bond. There's a specific threshold amount that is required to be exceeded before this triggers and obviously any call or put provisions that are already in the bond's structure don't count.		This is where a bond, for example, becomes due before it's normal maturity, for example your 30 year bond suddenly becomes a 2 year bond. There's a specific threshold amount that is required to be exceeded before this triggers and obviously any call or put provisions that are already in the bond's structure don't count.

	In a lot of cases, shortening a bond will result in a worse position for the investor - think of negative convexity in the mortgage bond market, but if a company has money to pay the amount outstanding it's unlikely to be a low Recovery event. This is one of the less common Credit Events.		In a lot of cases, shortening a bond will result in a worse position for the investor - think of negative convexity in the mortgage bond market, but if a company has money to pay the amount outstanding it's unlikely to be a low Recovery event. This is one of the less common Credit Events.

	== Obligation Default ==		=== Obligation Default ===
	Much like [[Obligation Acceleration]] there is a minimum threshold that must be exceeded but for this Credit Event to trigger a bond which is due to be paid is not paid and therefore is in Default.		Much like [[Obligation Acceleration]] there is a minimum threshold that must be exceeded but for this Credit Event to trigger a bond which is due to be paid is not paid and therefore is in Default.

	It is unlikely that an Obligation Default will not be accompanied by a [[Failure to Pay]] or in fact preceded by a Failure to Pay.		It is unlikely that an Obligation Default will not be accompanied by a [[Failure to Pay]] or in fact preceded by a Failure to Pay.

	== Failure to Pay ==		=== Failure to Pay ===
	The Failure to Pay Credit Event, also known as Payment Default, does pretty much what it says on the tin. It's where a payment is due under a contract and has not been paid. This contract could be the payment of coupons or principal on a bond, it could be on a bank loan or just any financial contract where payments are due. There are a couple of requirements, firstly there is a threshold amount, you couldn't trigger a Credit Event off the back of a $10 lunch reimbursement for example, and also there is a grace period whereby the company is given an amount of time to remedy the situation, to make sure that a Credit Event can't be triggered just because of a clerical error, or a Bank Holiday preventing settlement.		The Failure to Pay Credit Event, also known as Payment Default, does pretty much what it says on the tin. It's where a payment is due under a contract and has not been paid. This contract could be the payment of coupons or principal on a bond, it could be on a bank loan or just any financial contract where payments are due. There are a couple of requirements, firstly there is a threshold amount, you couldn't trigger a Credit Event off the back of a $10 lunch reimbursement for example, and also there is a grace period whereby the company is given an amount of time to remedy the situation, to make sure that a Credit Event can't be triggered just because of a clerical error, or a Bank Holiday preventing settlement.

	== Repudiation Moratorium ==		=== Repudiation Moratorium ===
	Repudiation and Moratorium are usually lumped together and are generally most applicable to Sovereign credits, this is a situation whereby the Government will just Repudiate the debt ("Nah that doesn't belong to me, never seen it before, could be someone else's but it's definitely not mine... Have you tried lost and found?") or they declare a Debt Moratorium. ("Yeah it's definitely mine but the cupboards are bare, you ain't getting anything, sorry")		Repudiation and Moratorium are usually lumped together and are generally most applicable to Sovereign credits, this is a situation whereby the Government will just Repudiate the debt ("Nah that doesn't belong to me, never seen it before, could be someone else's but it's definitely not mine... Have you tried lost and found?") or they declare a Debt Moratorium. ("Yeah it's definitely mine but the cupboards are bare, you ain't getting anything, sorry")

	Along with Restructuring these are the most common Sovereign Credit Events.		Along with Restructuring these are the most common Sovereign Credit Events.

	== Restructuring ==		=== Restructuring ===
	When companies start struggling but it's an orderly event (read: NOT LEHMAN) then there is usually time for either a Chapter 11 Bankruptcy protection or something similar in Europe and Asia, the end result is that the Debt gets restructured, maybe your 5 year bond becomes a 25 year bond. Maybe your claim for 100 USD becomes a claim for 20 USD or maybe someone jumps ahead of you in the seniority capital structure.		When companies start struggling but it's an orderly event (read: NOT LEHMAN) then there is usually time for either a Chapter 11 Bankruptcy protection or something similar in Europe and Asia, the end result is that the Debt gets restructured, maybe your 5 year bond becomes a 25 year bond. Maybe your claim for 100 USD becomes a claim for 20 USD or maybe someone jumps ahead of you in the seniority capital structure.

DrKazza: /* Bankruptcy */

2023-03-16T16:28:56Z

Bankruptcy

← Older revision		Revision as of 16:28, 16 March 2023
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	After a Credit Event has been confirmed this will then start in place a timeline leading to the [[Auction]] process to determine the final [[Recovery]] price(s).		After a Credit Event has been confirmed this will then start in place a timeline leading to the [[Auction]] process to determine the final [[Recovery]] price(s).

	== [[Bankruptcy]] ==		== Bankruptcy ==
	This is the catastrophic failure of a corporate (or financial) firm, this sort of Credit Event doesn't apply to Sovereigns/Countries since there's no concept of a Country going Bankrupt.		This is the catastrophic failure of a corporate (or financial) firm, this sort of Credit Event doesn't apply to Sovereigns/Countries since there's no concept of a Country going Bankrupt.

	This is also one quite a rare Credit Event, usually seen in Asia and Europe because in the US companies will more likely file for Bankruptcy Protection, also known as Chapter 11 and go through a restructuring, but it's not unheard of for a Bankruptcy event to happen.		This is also one quite a rare Credit Event, usually seen in Asia and Europe because in the US companies will more likely file for Bankruptcy Protection, also known as Chapter 11 and go through a restructuring, but it's not unheard of for a Bankruptcy event to happen.

	== [[Obligation Acceleration]] ==		== Obligation Acceleration ==
	This is where a bond, for example, becomes due before it's normal maturity, for example your 30 year bond suddenly becomes a 2 year bond. There's a specific threshold amount that is required to be exceeded before this triggers and obviously any call or put provisions that are already in the bond's structure don't count.		This is where a bond, for example, becomes due before it's normal maturity, for example your 30 year bond suddenly becomes a 2 year bond. There's a specific threshold amount that is required to be exceeded before this triggers and obviously any call or put provisions that are already in the bond's structure don't count.

	In a lot of cases, shortening a bond will result in a worse position for the investor - think of negative convexity in the mortgage bond market, but if a company has money to pay the amount outstanding it's unlikely to be a low Recovery event. This is one of the less common Credit Events.		In a lot of cases, shortening a bond will result in a worse position for the investor - think of negative convexity in the mortgage bond market, but if a company has money to pay the amount outstanding it's unlikely to be a low Recovery event. This is one of the less common Credit Events.

	== [[Obligation Default]] ==		== Obligation Default ==
	Much like [[Obligation Acceleration]] there is a minimum threshold that must be exceeded but for this Credit Event to trigger a bond which is due to be paid is not paid and therefore is in Default.		Much like [[Obligation Acceleration]] there is a minimum threshold that must be exceeded but for this Credit Event to trigger a bond which is due to be paid is not paid and therefore is in Default.

	It is unlikely that an Obligation Default will not be accompanied by a [[Failure to Pay]] or in fact preceded by a Failure to Pay.		It is unlikely that an Obligation Default will not be accompanied by a [[Failure to Pay]] or in fact preceded by a Failure to Pay.

	== [[Failure to Pay]] ==		== Failure to Pay ==
	The Failure to Pay Credit Event, also known as Payment Default, does pretty much what it says on the tin. It's where a payment is due under a contract and has not been paid. This contract could be the payment of coupons or principal on a bond, it could be on a bank loan or just any financial contract where payments are due. There are a couple of requirements, firstly there is a threshold amount, you couldn't trigger a Credit Event off the back of a $10 lunch reimbursement for example, and also there is a grace period whereby the company is given an amount of time to remedy the situation, to make sure that a Credit Event can't be triggered just because of a clerical error, or a Bank Holiday preventing settlement.		The Failure to Pay Credit Event, also known as Payment Default, does pretty much what it says on the tin. It's where a payment is due under a contract and has not been paid. This contract could be the payment of coupons or principal on a bond, it could be on a bank loan or just any financial contract where payments are due. There are a couple of requirements, firstly there is a threshold amount, you couldn't trigger a Credit Event off the back of a $10 lunch reimbursement for example, and also there is a grace period whereby the company is given an amount of time to remedy the situation, to make sure that a Credit Event can't be triggered just because of a clerical error, or a Bank Holiday preventing settlement.

	== Repudiation [[Moratorium]] ==		== Repudiation Moratorium ==
	Repudiation and Moratorium are usually lumped together and are generally most applicable to Sovereign credits, this is a situation whereby the Government will just Repudiate the debt ("Nah that doesn't belong to me, never seen it before, could be someone else's but it's definitely not mine... Have you tried lost and found?") or they declare a Debt Moratorium. ("Yeah it's definitely mine but the cupboards are bare, you ain't getting anything, sorry")		Repudiation and Moratorium are usually lumped together and are generally most applicable to Sovereign credits, this is a situation whereby the Government will just Repudiate the debt ("Nah that doesn't belong to me, never seen it before, could be someone else's but it's definitely not mine... Have you tried lost and found?") or they declare a Debt Moratorium. ("Yeah it's definitely mine but the cupboards are bare, you ain't getting anything, sorry")

DrKazza: /* Moratorium */

2023-03-16T16:28:33Z

Moratorium

← Older revision		Revision as of 16:28, 16 March 2023
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	The Failure to Pay Credit Event, also known as Payment Default, does pretty much what it says on the tin. It's where a payment is due under a contract and has not been paid. This contract could be the payment of coupons or principal on a bond, it could be on a bank loan or just any financial contract where payments are due. There are a couple of requirements, firstly there is a threshold amount, you couldn't trigger a Credit Event off the back of a $10 lunch reimbursement for example, and also there is a grace period whereby the company is given an amount of time to remedy the situation, to make sure that a Credit Event can't be triggered just because of a clerical error, or a Bank Holiday preventing settlement.		The Failure to Pay Credit Event, also known as Payment Default, does pretty much what it says on the tin. It's where a payment is due under a contract and has not been paid. This contract could be the payment of coupons or principal on a bond, it could be on a bank loan or just any financial contract where payments are due. There are a couple of requirements, firstly there is a threshold amount, you couldn't trigger a Credit Event off the back of a $10 lunch reimbursement for example, and also there is a grace period whereby the company is given an amount of time to remedy the situation, to make sure that a Credit Event can't be triggered just because of a clerical error, or a Bank Holiday preventing settlement.

	== [[Moratorium]] ==		== Repudiation [[Moratorium]] ==
	Repudiation and Moratorium are usually lumped together and are generally most applicable to Sovereign credits, this is a situation whereby the Government will just Repudiate the debt ("Nah that doesn't belong to me, never seen it before, could be someone else's but it's definitely not mine... Have you tried lost and found?") or they declare a Debt Moratorium. ("Yeah it's definitely mine but the cupboards are bare, you ain't getting anything, sorry")		Repudiation and Moratorium are usually lumped together and are generally most applicable to Sovereign credits, this is a situation whereby the Government will just Repudiate the debt ("Nah that doesn't belong to me, never seen it before, could be someone else's but it's definitely not mine... Have you tried lost and found?") or they declare a Debt Moratorium. ("Yeah it's definitely mine but the cupboards are bare, you ain't getting anything, sorry")

DrKazza at 16:28, 16 March 2023

2023-03-16T16:28:10Z

← Older revision		Revision as of 16:28, 16 March 2023
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	There are typically 6 things that can trigger a Credit Event:		There are typically 6 things that can trigger a Credit Event:

	* ~~[[Credit Event#~~Bankruptcy~~\|Bankruptcy]]~~		* Bankruptcy
	* ~~[[Credit Event#Obligation Acceleration\|~~Obligation Acceleration]]		* Obligation Acceleration
	* ~~[[Credit Event#~~Obligation Default~~\|Obligation Default]]~~		* Obligation Default
	* Payment Default ([[Failure to Pay]])		* Payment Default (Failure to Pay)
	* ~~[[Credit Event#Moratorium\|~~Repudiation/Moratorium]]		* Repudiation/Moratorium
	* ~~[[Credit Event#Restructuring\|~~Restructuring]]		* Restructuring

	These all have very specific terminology as defined by [https://www.isda.org/ ISDA]		These all have very specific terminology as defined by [https://www.isda.org/ ISDA]

DrKazza at 16:26, 16 March 2023

2023-03-16T16:26:44Z

← Older revision		Revision as of 16:26, 16 March 2023
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	There are typically 6 things that can trigger a Credit Event:		There are typically 6 things that can trigger a Credit Event:

	* [[Bankruptcy]]		* [[Credit Event#Bankruptcy\|Bankruptcy]]
	* [[Obligation Acceleration]]		* [[Credit Event#Obligation Acceleration\|Obligation Acceleration]]
	* [[Obligation Default]]		* [[Credit Event#Obligation Default\|Obligation Default]]
	* Payment Default ([[Failure to Pay]])		* Payment Default ([[Failure to Pay]])
	* [[Moratorium\|Repudiation]]/[[Moratorium]]		* [[Credit Event#Moratorium\|Repudiation/Moratorium]]
	* [[Restructuring]]		* [[Credit Event#Restructuring\|Restructuring]]

	These all have very specific terminology as defined by [https://www.isda.org/ ISDA]		These all have very specific terminology as defined by [https://www.isda.org/ ISDA]

DrKazza: consolidated Credit Event pages

2023-03-16T16:23:49Z

consolidated Credit Event pages

@@ Line 12: / Line 12: @@
 These all have very specific terminology as defined by [https://www.isda.org/ ISDA]
-When someone believes that a Credit Event has occurred they will post a question to the [https://www.cdsdeterminationscommittees.org/ Credit Derivatives Determinations Committee] who will review the evidence and if a Credit Event has indeed occurred they will publish the results and also the exact date of this event which is called the Event Determination Date.
+== [[Moratorium]] ==
-After a Credit Event has been confirmed this will then start in place a timeline leading to the [[Auction]] process to determine the final [[Recovery]] price(s).
+The [https://www.bis.org/publ/qtrpdf/r_qt0503h.pdf BIS has a paper] in their Quarterly review of 2005 by Frank Packer and Haibin Zhu on this.

DrKazza at 15:34, 10 January 2023

2023-01-10T15:34:23Z

← Older revision		Revision as of 15:34, 10 January 2023
Line 3:		Line 3:
	There are typically 6 things that can trigger a Credit Event:		There are typically 6 things that can trigger a Credit Event:

	* Bankruptcy		* [[Bankruptcy]]
	* Obligation Acceleration		* [[Obligation Acceleration]]
	* Obligation Default		* [[Obligation Default]]
	* Payment Default (Failure to Pay)		* Payment Default ([[Failure to Pay]])
	* Repudiation/Moratorium		* [[Moratorium\|Repudiation]]/[[Moratorium]]
	* Restructuring		* [[Restructuring]]

	These all have very specific terminology as defined by [https://www.isda.org/ ISDA]		These all have very specific terminology as defined by [https://www.isda.org/ ISDA]

DrKazza: Credit Credit Event

2023-01-10T13:53:12Z

Credit Credit Event

New page

A Credit Event is the thing that will trigger a change in cashflows on a Credit Derivative.

There are typically 6 things that can trigger a Credit Event:

* Bankruptcy
* Obligation Acceleration
* Obligation Default
* Payment Default (Failure to Pay)
* Repudiation/Moratorium
* Restructuring

These all have very specific terminology as defined by [https://www.isda.org/ ISDA]

When someone believes that a Credit Event has occurred they will post a question to the [https://www.cdsdeterminationscommittees.org/ Credit Derivatives Determinations Committee] who will review the evidence and if a Credit Event has indeed occurred they will publish the results and also the exact date of this event which is called the Event Determination Date.

After a Credit Event has been confirmed this will then start in place a timeline leading to the [[Auction]] process to determine the final [[Recovery]] price(s).