Credit Cliff

Credit Cliff

Informal; a situation where a decline in credit availability can make a bad situation for a company even worse. For example, suppose a company has a large amount of debt. It may default on one loan or bond, causing its credit rating to be reduced. This will cause banks and investors to require higher interest rates for further extensions of credit. This increases the company's liabilities and can cause further defaults on loans and bonds. In short, a credit cliff is a compounding of a bad situation caused by credit problems.
References in periodicals archive ?
This will help identify so-called credit cliff situations, where the creditworthiness and rating could decline precipitously under certain, lower probability but adverse scenarios.
Standard & Poor's previously published article, "Playing Out the Credit Cliff Dynamic," can also be found on RatingsDirect and http://www.
Based on these revised purchase rate assumptions (assuming no change in assumptions related to yield, losses, or payment rate is warranted), in most cases, a one-category downgrade with respect to the rating of the seller/servicer should not result in a credit cliff for outstanding securitized bonds.
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