Lesson 8 of 25 · 5 min

Compute the trigger

The trigger is a property of the balance and the threshold, so a price stress that leaves the loan untouched leaves the trigger untouched.

The trigger is the collateral value at which the balance equals the maintenance threshold exactly. On this facility that is the balance divided by 0.70, and on the March close it is $1,858,563.47 ÷ 0.70 = $2,655,090.67.

trigger = balance ÷ threshold

trigger: The market value at which LTV is exactly 70 percent, given today's balance.
balance: Principal plus accrued interest. $1,858,563.47 on the March close.
threshold: 0.70 on this facility, written against market value.

None of the four price stresses in this track changes either input. The 19 percent book, the Calder-only book, the combined book and the 60 percent book all carry the same $2,655,090.67 trigger. What changes is whether current market value sits above that number or below it. A reader who rebuilds the trigger from the stressed marks is multiplying two numbers that do not belong in that formula.

The 60 percent book is the one that crosses. Market value is $2,413,118.00, which is $241,972.67 under the trigger. The trigger did not fall to meet the book. The book fell through a figure that had been sitting still since the March interest was added. A later lesson lets the balance move, and then the trigger moves with it. Until the balance moves, the trigger is the most boring number on the page, and that is the useful fact about it. Recomputing it after every mark is extra work that cannot change the answer, because neither input has changed.

Key terms

Trigger: Balance divided by the maintenance threshold. The collateral value at which the test is exactly at the line.
Loan-side input: A figure that lives on the balance or in the agreement rather than in the holdings. Price stresses do not edit it.
Stationary trigger: A trigger that does not move across a set of price stresses because neither the balance nor the threshold has moved.

Worked example

One trigger, four books

Balance $1,858,563.47. Threshold 0.70. Trigger $2,655,090.67 in every row.

Uniform 19 percent market value: $4,886,563.95
Calder −37 percent market value: $5,351,993.15
Both, market value: $4,555,363.05
Uniform 60 percent market value: $2,413,118.00
Trigger in all four cases: $2,655,090.67

Four different books, one trigger. The crossing happens because the book moved, not because the line did.

Check yourself

After a 60 percent decline the book is worth $2,413,118. What is the trigger, and by how much does the book sit under it?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.