news, comment, analysis and data on the global business of credit trading and investing
Principal writedown
A reduction in the principal of an asset-backed security as a result of losses from the portfolio being allocated to this tranche. Principal writedown does not necessarily trigger a credit event. In an asset-backed credit default swap. Instead, the protection seller can be required to make a payment to the protection buyer to compensate for the writedown. Principal writedowns can usually be reversed as a result of an improvement in the portfolio, and this leads to additional payments being made from the protection buyer to the protection seller.
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