nondefaulting

Nondefaulting is an adjective used in finance and contract law to describe a party, instrument, or obligation that has not defaulted on its financial commitments. Default typically means failure to meet payment obligations, breach of covenants, insolvency, or cross-default under a debt agreement. A nondefaulting status indicates that such triggers have not occurred and, in many contracts, allows continued performance, access to credit, or eligibility for favorable terms.

In lending, a nondefaulting borrower maintains timely payments and compliance with covenants, whereas a defaulting borrower triggers remedies such as acceleration, late fees, or collateral seizures. Some agreements include cure periods during which a default can be remedied without further action, preserving nondefaulting status.

In securities markets, nondefaulting counterparty refers to participants that are current on obligations in systems such as clearinghouses, exchanges, or over-the-counter contracts. The distinction is important for settlement, collateral management, and risk assessment, as default events can propagate losses to other parties.

Credit risk assessments often focus on the likelihood that a borrower will remain nondefaulting, or conversely, the probability of defaulting; ratings and risk models may treat nondefaulting status as the baseline condition in the absence of triggers.