Trigger event
Asset-Backed Securities glossary · Cash Flow Waterfalls & Triggers
Definition
An event that changes the transaction's cash flow rules, typically to protect senior bondholders.
Trigger event in plain English
Imagine a deal where investors' money is being paid back over time, and everyone agrees on rules for who gets paid first. A trigger event is a specific bad sign — like too many borrowers falling behind on payments — that automatically flips the rules to a safer mode. When it fires, cash that would have gone to riskier investors (or back to the deal's sponsor) gets rerouted to pay down the safest investors faster, protecting them before things get worse. Think of it like a boat springing a leak: the alarm goes off and everyone's told to bail water toward the most important side of the ship first.
Learn these first
Related Asset-Backed Securities terms
Asset-Backed Securities practice questions · Asset-Backed Securities flashcards · Asset-Backed Securities study guide