Credit Cliff

AAA

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.

INVESTOPEDIA EXPLAINS '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. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  3. Default Model

    A type of model used by financial institutions to determine the ...
  4. Covenant

    A promise in an indenture, or any other formal debt agreement, ...
  5. Death Spiral

    A type of loan investors give to a company in exchange for convertible ...
  6. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
Related Articles
  1. What Is A Corporate Credit Rating?
    Investing Basics

    What Is A Corporate Credit Rating?

  2. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  3. Are Your Stocks Doomed?
    Markets

    Are Your Stocks Doomed?

  4. Finding The Best Yields
    Active Trading

    Finding The Best Yields

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center