Credit event

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A credit event occurs when a person or organization defaults on a significant transaction. He or she is unable to honor the terms of the contract entered, and the borrower’s ability to pay comes into question. Because the marketplace recognizes such events as related to one's credit worthiness, credit events can trigger specific protections provided by credit derivatives (e.g. credit default swap, credit default swap index, credit default swap index tranche).^[1]

A credit event triggers a swap where oftentimes the borrower has to terminate the contract and accept a settlement instead of honoring the remaining terms, because the credit event that occurred has essentially forced them to do so when they default.