Although rating triggers are widely used in European commercial and financial agreements – albeit to a lesser extent than in the US corporate debt market – the disclosure of ratings triggers is unsystematic and awareness of the effects of rating triggers is low among European debt issuers, reports Moody’s. Moody’s surveyed 345 European corporate debt issuers, finding that rating triggers were frequently contained in European financial agreements for low- to mid-investment-grade credits – especially bank, swap, lease and bond documentation – while very few rating triggers were found in agreements of sub-investment-grade issuers. However, Moody’s cautions that the number of rating triggers may be understated in view of the unsystematic disclosure of ratings triggers in Europe and the fact that an awareness of potentially problematic ratings triggers is limited. Rating triggers can vary in impact from benign to severe. Moody’s European survey found rating triggers at both ends of the spectrum, with a high occurrence of triggers with benign consequences as well as a high occurrence of triggers with potentially severe consequences.
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