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 ?
The report, '2007 Rating Trigger Trends in the U.S.
Fitch will monitor the further development of the exchange rates (FX) and the extent that financial ratios are affected, which may require rating action during 2018, if the negative rating trigger is met.
At the end of 2010, the group's total debt to EBITDA ratio stood at 4.5x, which is high for the current rating and increases the possibility that the company would breach S&P's downgrade rating trigger of more than 4.0x by the middle of 2011.
A rating uplift on Chile would prompt the same action on the bank but a marked deterioration in its capitalisation, asset quality or financial performance would be a negative rating trigger, S&P added.
At the same time, a weakening of their importance to and links with their parents would be a negative rating trigger, the service added.
Positive rating triggers that could lead to an upgrading of FCIC and/or MIC s ratings are continued profitability, capital appreciation and an increased presence of both companies outside of Alberta and British Columbia.
Significant deterioration in the company's risk-adjusted capitalisation or net operating results falling short of the agency's expectations would be negative rating triggers.
The rating triggered the news that C&W may have to set aside pounds 1.5billion to cover a German tax bill and it's thought the group will have to dip into its pounds 2.2billion cash pile.
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. Ms.
Positive rating triggers would be an increase in NCIC s surplus and improvement in its risk-adjusted capitalization.
Sustained strong budgetary performance with operating margins above 15%, close to balanced budget and containment of direct risk at manageable levels would be considered positive rating triggers, Fitch said.
Upgrade rating triggers include a significant improvement in the industry profiles and operating environments of the markets AIA operates in, together with very strong and sustained financial performance and very strong capitalisation, with Fitch's Prism FBM score well into the 'Extremely Strong' category.