A trigger event is an event that will cause a securitisation to be terminated or restructured. A trigger event is sometimes referred to as a "default event" or a "credit event".
Trigger events are typically specified in the securitization documentation. They can include events such as:
- Default by the underlying obligors: If the underlying obligors (e.g., borrowers) default on their payments, this may trigger a securitisation to be terminated or restructured.
- Deterioration in the credit quality of the underlying assets: If the credit quality of the underlying assets deteriorates, this may trigger a securitisation to be terminated or restructured.
- Change in the market conditions: If the market conditions change significantly, this may trigger a securitisation to be terminated or restructured.
Trigger events are important because they protect the investors in a securitisation. If a trigger event occurs, the investors may be able to recover their money or be given other compensation.
Here are some of the applications of trigger events in securitisation:
- To protect investors: Trigger events protect investors in a securitisation by ensuring that they will be compensated if a default event occurs.
- To manage risk: Trigger events can be used to manage risk by ensuring that the securitisation is terminated or restructured if the underlying assets deteriorate in credit quality or if the market conditions change significantly.
- To create new products: Trigger events can be used to create new securitization products that meet the needs of different investors. For example, an issuer may issue a securitization with a different set of trigger events, or with different consequences for the investors if a trigger event occurs.
Trigger events are a valuable tool for securitisation. They can be used to protect investors, manage risk, and create new products.