An impaired capacity/ ability of a borrower/ reference entity (in a credit derivative contract/ arrangement) to meet contractual payments, whereby triggering settlement of the derivative instrument (such as a credit default swap). If the credit event does not take place before the maturity of the agreement, the protection seller does not make any payment (compensation) to the protection buyer.
Examples of credit events, in this context, include defaulting on payment (on a premium leg), restructuring debt, and filing for bankruptcy.
