In securitisation, an event of default (EOD) is a specific condition that, if met, can trigger the acceleration of payments or other remedies under the securitisation documents. EODs are typically defined in the securitisation's documentation and can include events such as:
- A borrower's failure to make a payment on a loan
- A borrower's breach of any other covenant or condition in the loan agreement
- The filing of a bankruptcy or insolvency proceeding against a borrower
- The occurrence of a material adverse change in the borrower's financial condition
When an EOD occurs, the securitisation trustee may have the right to accelerate the payments due under the securitisation notes. This means that the trustee may demand that all of the outstanding principal and interest be paid immediately. The trustee may also have the right to take other actions, such as foreclosing on the borrower's collateral.
EODs are important for investors in securitisations because they can have a significant impact on the value of their investments. If an EOD occurs, investors may lose all or part of their investment. It is important for investors to carefully consider the EODs that are defined in the securitisation's documentation before investing.