You seem not to understand what constitues the definition of "default" which triggers the liquidation preference. Here is a little taste of real-world verbage:
Sample and Methodology
SAMPLE DESCRIPTION AND TIME PERIOD
The sample is drawn from defaults that occurred between 1982 and 2003. Over this time period, Moody’s recorded
roughly 2,800 default events. After eliminating companies that defaulted on instruments other than bonds and/or preferred
stock, roughly 2,100 defaulting issuers were left in the sample. The sample also excluded certain defaulted
instruments, such as preferred stock issued by trust companies or bonds that were initially issued at deep discount to
par. The final sample consisted of 1,237 issuers that have price data on roughly 2,500 defaulted bonds and 79 issuers
that defaulted on 111 defaulted preferred stocks.
DEFINITION OF DEFAULT
For a security to be included in our sample of defaulted bonds and preferred stocks the issuer of the security must have
been categorized as being in “default”[/] as defined by Moody’s.
Moody’s default definition includes three types of events:
1. A missed or delayed disbursement of interest and/or principal, including delayed payments made within a
grace period;[b/]
2. Filing for bankruptcy, administration, legal receivership, or other legal blocks (perhaps by regulators) to the
timely payment of interest and/or principal;[b/] or
3. Consummation of a distressed exchange where: (i) the issuer offers bondholders a new security or package
of securities that amount to a diminished financial obligation (such as preferred or common stock, or debt
with a lower coupon or par amount, lower seniority, or longer maturity); or (ii) the exchange had the
apparent purpose of helping the borrower avoid default.[b/]
The definition of a distressed exchange is intended to capture events that change the relationship between the
bondholder and bond issuer from the relationship that was originally contracted and that subjects the bondholder to
an economic loss. Technical defaults (covenant violations, etc.) are not included in Moody’s definition of default.
