ABSTRACT
The legal documents set forth legal parameters and terms under which debt is issued. In particular, Moody's looks to legal documents to determine the actual security behind the bond, identify the issuer's responsibilities in the transaction, identify the bondholder's recourse should there be a payment default, and get comfort as to the issuer's legal right to issue the debt. The significance of relevant legal documents varies with the complexity and structure of a transaction. The term moral obligation is used to describe one element of security in state issuances in which state would pledge revenues as the primary security and agree to fund and subsequently replenish a debt service reserve as the secondary security. A default is a breach of some covenant, promise, or duty imposed by bond contract, such as failure to pay principal, interest, or both when due. A "technical" default results when specifically defined events of default occur, such as a breach of a trust indenture covenant.
