default risk

Default risk

The risk that an issuer of a bond may be unable to make timely principal and interest payments. Also referred to as credit risk (as gauged by commercial rating companies).

Default Risk

The risk that a debtor will be unable to pay back its loans. Default risk goes up if a debtor has large number of liabilities and poor cash flow. Generally speaking, companies and persons with high default risk stand a greater chance of a loan being denied and pay a higher interest rate on the loans they do receive. See also: Bankruptcy.

default risk

The possibility that a borrower will be unable to meet interest and/or principal repayment obligations on a loan agreement. Default risk has a significant effect on the value of a bond: if a borrower's ability to repay debt is impaired, default risk is higher and the value of the bond will decline.
References in periodicals archive ?
Kim, Nelson and Startz (1991) find that distortions surrounding the Great Depression and World War II cause a much different time series for financial market measures, although they do not study default risk premiums.
First, each of the agency problems is exacerbated when default risk is greatest, implying that riskier debt offerings are more likely to include a call provision.
States, municipalities and other political subdivisions issue general obligation bonds, which-although backed by the issuer's full faith and credit-have an increased level of default risk.
AA+' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country.
More harmful still is that a very strict definition of a naked sale would keep investors who finance public investment or companies that enter into contracts with sovereign nations or with state-owned companies from hedging the default risk of their counterparties.
The UFA Default Risk Index for the third quarter of 2010 dropped to a score of 184--half the peak level set in 2007, explained Dennis Capozza, the Dale Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, Ann Arbor.
Our UFA default risk indices, which assess these future risks at the ZIP code level for loans originated today, are an example of information credit unions can use to reduce risk and serve their members better.
The central bank said commercial lending rates are unlikely to fall because banks wrongly perceive that the loan default risk is still high.
Are macroeconomic cycles themselves or default risk premia, market liquidity, and even market risk significant determinants of yield spreads?
The multifactor model is an extension of Stone's model [1974] to include economy-wide and banking industry-specific default risk variables in addition to proxies for changes in both short-term and long-term interest rates.
This approach was generalized by Sundaresan [13] who assumed a stochastic process to characterize future interest rate movements in order to show how default risk impacts swap valuation.
Credit or default risk, simply stated, is the possibility that the investor's principal and/or interest will not be returned when due.