rating trigger

Rating Trigger

A provision in a loan agreement or bond indenture allowing one party or the other to take a certain action if the borrower's credit rating changes for any reason. For example, if a bond issuer's credit rating falls, a rating trigger may release bondholders from certain obligations specified in the indenture.

rating trigger

A provision in a loan agreement that initiates a specific action in the event of a change in a firm's credit rating. For example, a downgrade in a firm's credit rating may set off accelerated debt repayment in a backup credit line.
Case Study Selling in a regulated market and buying in an unregulated market caught up with California electric utility PG&E in 2000 and 2001 when wholesale electric prices skyrocketed on the West Coast. Unable to raise the price of its product in the face of rising wholesale electric prices, the firm began defaulting on its debts when rating triggers from a rating downgrade allowed financial institutions to stop funding the company's commercial paper. The lack of funding for PG&E's commercial paper caused the company to default on its pollution-control bonds and a variety of short- and medium-term notes. The importance of the rating trigger in PG&E's subsequent bankruptcy caused one major rating agency to indicate that it would consider the negative consequence of triggers in evaluating whether a company would be able to survive a rating downgrade. Some corporations began to reconsider the inclusion of rating triggers in borrowing agreements when they discovered the rating agencies would consider these triggers in evaluating the credit quality of corporate debt.
References in periodicals archive ?
Positive rating triggers would be an increase in NCIC s surplus and improvement in its risk-adjusted capitalization.
Key rating triggers that could lead to a downgrade of MKL's ratings include: material underperformance of newly acquired Alterra businesses, and a material deterioration in underwriting or balance sheet strengths.
Any treaties with rating triggers represent a de minimus amount of our in-force business.
Specific areas requiring close attention in the due diligence process were the asset/liability measurement tests, income acceleration, hedge identification, tax indemnities and gross ups, acceleration clauses, and rating triggers.
Key rating triggers that could lead to a downgrade are continued adverse reserve development similar in level to the last two years, a deterioration of net leverage to greater than 2.
Negative rating triggers could include prolonged adverse operating results that are exacerbated by a series of large catastrophic events.
Investors can also view the latest monthly performance report including rating triggers, industry concentrations, WARF, weighted average spread, diversity score and OC ratios.
Key rating triggers that could lead to an upgrade are: GAAP interest coverage of 6x to 8x; financial leverage below 20% and RBC maintained at or above current levels.
The key rating triggers that could result in a downgrade include:
Key rating triggers that could lead to a downgrade include prolonged underwriting weakness, demonstrated by a failure to produce an underwriting profit given normal catastrophe losses, and a material deterioration in current balance sheet strengths.
Key rating triggers that could result in a downgrading of the ratings include a precipitous decline in the companies' risk-adjusted capital strength.