Account banks, swap counterparties and liquidity facility providers getting downgraded is now the new norm. Not being able to locate replacements with the requisite ratings and/or the appetite to take on these roles on substantially similar terms is also passé. In reality, it is frequently the case that nothing changes. These entities are still performing their obligations and from an operational standpoint, the deal functions as it should. But the problem arises because of the by now oft used phrase “in breach”. The transaction documents oblige either the servicer or the issuer to search for replacements who hold the requisite ratings. Every day that an entity that is “in breach” of the rating triggers remains on the deal is a day where the issuer and/or the servicer is “in breach” of its obligations. This is despite the fact, that the deal may still be performing as it should!
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