A credit event occurs when a person or organization defaults on a significant transaction. Because the marketplace recognizes such events as related to one's credit worthiness, credit events can trigger specific protections provided by credit derivatives (e.g. credit default swap, credit default swap index, credit default swap index tranche). The events triggering a credit derivative are defined in a bilateral swap confirmation which is a transactional document that typically refers to an ISDA master agreement previously executed between the two swap counterparties. There are several standard credit events which are typically referred to in credit derivative transactions:
- Bankruptcy
- Failure to Pay
- Restructuring
- Repudiation
- Moratorium
- Obligation Acceleration
- Obligation Default
For most commonly traded Reference Entities in Credit Default Swaps a Determination Committee will decide on exactly if and when a Credit Event has occurred, and their decisions and announcements are posted on their website: http://www.isda.org/credit/
For names which are not covered by the Determination Committee a Credit Event is determined by proof of "Publicly Available Information" from two independent sources, typically from a set of pre-defined news agencies.
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