event risk

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Event risk

The risk that the ability of an issuer to make interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment such as (1) a natural or industrial accident or some regulatory change or (2) a takeover, or corporate restructuring.

Event Risk

The risk that an unpredictable, non-repeating event will cause a loss. A strike at a factory or an accident that renders a mine inoperable are examples of event risk. Insurance is intended to lessen many event risks.

event risk

The risk that some unexpected event will cause a substantial decline in the market value of a security. For example, a leveraged buyout that entails huge amounts of new debt will cause a decline in the market value of the target company's outstanding debt.
Case Study The September 11, 2001, terrorist attacks with hijacked airliners on New York's World Trade Center and Washington's Pentagon caused death and destruction on a monumental scale. The tragic events also had an effect on numerous businesses, including insurance companies, hotels, cruise lines, and brokerage and investment banking firms that conducted much of their activities from the impacted area of New York City. Trading of stocks in the United States was halted from September 11 until September 17. On a national scale no industry was affected more than commercial airlines. Four large passenger jets lost to suicidal terrorists were only the tip of the iceberg for an industry that was already on a downward economic slide. The hijackings on the morning of September 11 caused the Federal Aviation Administration to ban all commercial airline traffic in the United States for most of three days, an expensive proposition for airlines that experts estimated did business at a quarter of a billion dollars daily. The airlines were already experiencing a major decline in profitable business travel, and the hijackings caused fearful leisure travelers to cancel existing bookings and reduce their own airline travel. Analysts were expecting industry losses in 2001 of $2.5 to $3.5 billion prior to the attack. Following the attack these estimates ranged upward to $5 billion with some forecasts of several industry bankruptcies. One smaller firm, North Carolina-based Midway Airlines, threw in the towel and permanently shut down all of its operations on the day following the terrorist attack. Continental Airlines was the first airline to announce large layoffs of 12,000 employees. Other airlines soon followed with employment and schedule reductions of their own at the same time as they requested billions of dollars in federal financial assistance. Airlines incur substantial fixed expenses, including salaries and lease payments, that must be taken care of regardless of how many people purchase tickets. High fixed costs mean that reduced load factors (a smaller percentage of filled seats by paying passengers) have a major impact on the firms' income. When equity markets reopened on Monday following the disaster, airline stock declines from the prior Monday included 52% for US Airways, 49% for Continental, 44% for Delta, 42% for UAL (parent of United Airlines), and 39% for AMR (parent of American Airlines). One terrible event resulted in unexpected financial distress and extensive shareholder losses in an already troubled industry.
References in periodicals archive ?
Moody's decision to adjust the local and foreign currency country ceilings for Bulgaria is based on assessment of the moderate economic strength and moderate susceptibility of event risks.
These efforts attempt to contain event risks by limiting issuers' capital structure choices and options for elective activities such as mergers/acquisitions or dividend recapitalizations.
In many cases, these ratings thus do not, nor could they reasonably capture the event risks against which many non-financial covenants provide investor protection.
For bondholders, shareholder payouts and/or stock buybacks are the more probable event risks, and primary causes for concern.
While their respective answers do not differ significantly from some of their peers and may not be cause for immediate concern for bondholders, Fitch remains mindful of the intermediate-term event risks that bondholders of newspaper companies continue to face; particularly of newspaper companies with higher investment grade ratings.
Fitch believes that family or trust-owned enterprises with dual-class stock structures are better positioned to take a longer-term view of the risks and opportunities in the newspaper space and to weather near-term turbulence in the stock markets, thereby better insulating them from shareholder activist-driven event risk.
incorporated the event risks associated with a potential deal with Liberty Media to repurchase a portion of or its entire stake in News Corp.
The rating incorporates the event risks associated with a potential deal with Liberty to repurchase a part or all of Liberty's stake in News Corp.
However, Fitch believes that following the close of the transaction event risks will be elevated due to the increased possibility that The Carlyle Group (based on historical propensity) may increase leverage at ICCI to fund a large dividend payment.
Certain event risks have been resolved since this rating action.
In addition, Lucent faces considerable event risks associated with the business restructuring.
In addition to Coopers & Lybrand, participating practitioners in the Risk Institute will include Gifford Fong of Gifford Fong Associates, a California firm situte reflects the firm's belief that "partnersinstitutes and think tanks, such as the Whartonill dedicate itself to developing applied soluti Lybrand's financial risk management practice is drawn from the firm's consulting, business assurance and litigation support areas, providing a depth of experience and knowledge in all major risk categories, including market, credit, operational, reputational, regulatory and event risks.