Obligation acceleration and Obligation

[suhailk]

Hi David,

Can you help me understanding these two terms.

"where the relevant obligation becomes due and payable as a result of a default by the reference entity before the time when such obligation would otherwise have been due and payable"

can you provide some example of this.


Thanks

Suhail

 

[David Harper CFA FRM]

Hi Suhail

Example could be a bond issue that has a covenant: entire principal becomes due (accelerates) if bond is downgraded to junk status. Normally, downgrade (credit deterioration) is not an ISDA event. So, in this example, the downgrade per se wouldn't constitute a trigger, but could accelerate and the acceleration could trigger an event for purposes of a CDS. Like *restructuring* as a trigger, has been controversial b/c either (i) redundant with other triggers and/or (ii) commingles non credit risks.

David

 

[suhailk]

Thanks David

This has cleared the picture in my mind

suhail