Credit Cliff
A slang term referring to the compounding of a company's credit deterioration caused by provisions such as financial covenants, or events that trigger a change in the company's credit rating. These can put pressure on the company's liquidity or its business to a material extent. Investopedia Says:
For example, if a company is performing poorly it may get a credit rating downgrade, which gives the company a higher cost of capital (because a lower rating means the company would have to pay higher interest on its debt), making the company's situation even worse.
You can think of a highly leveraged company that is in financial trouble as teetering on the edge of a cliff. One false step and they'll be in a freefall! Related Terms:
Bond
Bond Rating
Covenant
Death Spiral
Debt
Default Model
Default Probability
Default risk
Liquidity |