Credit Cliff

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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.
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