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Glossary

Default

Default is the non-fulfillment of a loan agreement, which means the failure to pay interest or principal on debt obligations on time or under the terms of an agreement on the issue of a bonded loan.

Default on a bond may happen because of a missed coupon payment, absence of amortization or redemption of the par value, refusal to redeem bonds under the put/call option, if it was provided in the issue documentation. It is important to understand that there could be a situation when the issuer has several issues and some of them have defaulted status, and some have not (sometimes because the next payment date has not passed yet). However, if in the conditions of the defaulted bond issuer there was a covenant on cross-default, in this case the default can be declared according to the covenant, despite the fact that formally payments on this issue could be executed.

Default occurs if the issuer failed to fulfill its obligations on the due dates and further within the technical default period (during the grace period). The grace period is specified in the issue documents, but it can also be fixed by law (for example, not more than 10 days, unless another period is indicated in the issue prospectus).

Sometimes, in order to avoid a complete loss of funds, bondholders agree with the issuer to defer payment, reduce its size and exchange the current issue for a new one. This process is called debt restructuring.

Information on debt servicing and defaults for specific issues can be viewed on the page for the defaulted bond. For example: https://cbonds.com/bonds/59841/.

The past defaults on bonds can be viewed at Corporate Actions section.

Among other indices Cbonds also publishes the probability of default for different countries, calculated on the basis of ICE CDS data of the relevant period. For example, the probability of a default in Turkey over the next 10 years.
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