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Mar 11Doug Smith

Buzzword of the Week: Obligor

Mar 11Doug Smith
Scrabble Word For Bills And Dollars

I’m forever discovering new financial buzzwords, and thanks to the website Investopedia, I’m able to figure out what they mean. This week’s word was a new one on me, for sure: Obligor.

Investopedia explains that an obligor is a person or entity who is legally, or contractually, obliged to provide some benefit or payment to another. In the financial context, the term obligor refers to a bond issuer, who is contractually bound to make all principal repayments and interest payments on outstanding debt. The recipient of the benefit or payment is known as the obligee.

An obligor is also referred to as a “debtor.” [Frankly, why didn’t they just say debtor in the first place?]

As bond issues are contractual obligations, issuers have very little leeway in terms of deferring principal repayments or interest payments. Any delay in payment or non-payment of interest could be interpreted as a default for the bond issuer, an event that could have massive repercussions and long-term ramifications for the continuing viability of the business. As a result, most bond issuers take their debt obligations very seriously. With that said, defaults by over-leveraged issuers do occur from time to time.

photo credit: Bills via photopin (license)

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