Credit Cliff

DEFINITION of '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.

BREAKING DOWN 'Credit Cliff'

For example, if a company is performing poorly it may get a credit rating downgrade, which gives the company a higher cost of capital. This is because a lower rating increases the company's interest payments on its debt, making its 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 it'll be in a freefall.

RELATED TERMS
  1. Credit Rating

    An assessment of the creditworthiness of a borrower in general ...
  2. Credit Limit

    The amount of credit that a financial institution extends to ...
  3. Credit Reference

    A credit reference can be a report from a credit agency for either ...
  4. Affirmative Covenant

    A type of promise or contract which requires a party to do something. ...
  5. Credit Exposure

    The total amount of credit extended to a borrower by a lender. ...
  6. Available Credit

    The unused portion of an open line of credit, such as a credit ...
Related Articles
  1. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  2. Mutual Funds & ETFs

    Investing In Credit Card Companies

    This investment requires keeping an eye on consumer indexes and the overall health of the economy.
  3. Economics

    Understanding Covenants

    A covenant is a term placed in a loan that requires the borrower to either maintain or refrain from certain business activities.
  4. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  5. Stock Analysis

    Could Cliffs Natural's Latest Move Save the Stock? (CLF)

    Commodities stocks have been punished in recent years, and one of the hardest-hit companies has been iron-ore specialist Cliffs Natural Resources (NYSE: CLF). With demand for steel production ...
  6. Credit & Loans

    5 Ways Bad Credit Screws Up Your Life

    When your credit score slumps, many other things in your life can also start to slide downward. How to recognize the situation and start dealing with it.
  7. Stock Analysis

    3 Key Numbers for Cliffs Natural Resources (CLF)

    As hard as stocks across the commodities industry have gotten hit, it's hard to find companies that have seen bigger declines than Cliffs Natural Resources (NYSE: CLF). The iron-ore producer ...
  8. Credit & Loans

    Millennials: Prevent a Bad Credit Score

    Here are five ways to help prevent getting a bad credit score that could affect future loan, credit card or mortgage approvals.
  9. Credit & Loans

    Business Vs. Consumer Credit Reports: What's the Difference?

    Find out the difference between a business credit report and a personal credit report, and why it should matter for business owners.
  10. Credit & Loans

    A Quick Way to Boost Your Credit Score

    The easiest technique ever for raising your credit score. Why don't more people use it?
RELATED FAQS
  1. What credit rating should I look for in an oil and gas company?

    Determine what credit rating to look for in an oil and gas company. Credit ratings reflect evaluations by credit agencies ... Read Answer >>
  2. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
  3. How do I get a higher limit on my credit cards?

    Understand how credit limits work with major credit card companies and things you can do to get a higher limit on your credit ... Read Answer >>
  4. How important is credit rating on a fixed income security?

    Learn how credit ratings for fixed-income securities impact the yield and provide guidance for the amount of risk for the ... Read Answer >>
  5. What are some good alternatives to taking out a line of credit?

    Read more about how opening a line of credit might not be the best answer for you and determine available alternatives if ... Read Answer >>
  6. Why do companies issue debt and bonds? Can't they just borrow from the bank?

    Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center