Investopedia explains 'Temporary Default'
A high credit rating means that a company, country or issuer will pay lower interest. If a bond is placed in a temporary default, the borrower is seen as more risky, so a higher interest rate must be given to compensate future investors.
During this stage, investors may be given the option to exchange their current bonds with ones that have lower yields and longer payment periods. This deal is attractive to investors because the investors are aware that the current bonds issued are likely to be defaulted on. Moreover, it gives investors a greater opportunity for returns. A bond exchange also allows the issuer to improve its debt rating by having more time to pay debt at a lower rate. The bond rating company takes into account that steps are being made to avoid default. Even though there is still a chance of default, the issuer is no longer in as much jeopardy of a true default. In this case, a temporary default rating is awarded.
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