Rating trigger
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
A trigger tied to the credit rating of a transaction party (servicer, swap counterparty, liquidity provider).
Rating trigger in plain English
A rating agency is like a credit-score service for companies: it publicly grades how likely a business is to pay what it owes, from top-grade down to shaky. In a big financial deal, several outside companies each have a job to do (collecting payments, honoring a side-agreement, providing emergency cash), and a rating trigger is a rule that says: if any of those helper companies' grade drops below an agreed level, something automatic happens to protect investors. For example, the deal might force that weakened company to post collateral, or be swapped out for a healthier one. It's basically a smoke alarm wired to a key partner's financial health so problems get handled before they blow up.
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