Arises when credit deterioration could be compounded by provisions such as financial covenants or rating triggers. These can put significant pressure on the company’s business or on its liquidity. For instance, if a company owes $100,000 and has a lending covenant that says it must pay off some portion (or all) of the loan if current assets fall below a minimum, a credit cliff is created and the company could actually fail as a result.
Buy The Book
