Financial Definition of OBLIGOR
What It Is
An obligor is a person or entity legally required to provide a payment, service, or other benefit to another person or entity (the obligee).
How It Works
Companies that issue bonds are perhaps the most well-known obligors. They must provide their bondholders with set interest and principal payments on specified dates, and in some cases, must be willing to convert that debt into equity at specified ratios or repay the debt early if certain events occur.
In certain cases, obligors might also be required to perform particular tasks or even refrain from performing certain actions. If an obligor fails to meet its obligations, the obligor is sometimes considered to be in default.
Obligors can also be called borrowers or debtors in contracts.
Why It Matters
Obligors are subject to contractual obligations. As such, if they do not fulfill their obligations, the obligees usually have the right to seek recourse in court. A significant amount of reputational damage can also occur when an entity, especially a public company, fails to meet its obligations. In some cases, even the speculation that an obligor might not fulfill its obligations can cause its stock price to go down and make it very difficult to obtain financing or other help later.
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