A break in ratings can strongly affect a company, since its dues of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P) are weighed junk- or high risk bonds. Their high-reaching risk of default (approximately 1.6% for Ba) is compensated by higher interest payments. Cheesy Credit is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to default on his debt. These types of deficit are frequently repackaged and sold below face value. Buying junk bonds is seen as a risky but potentially profitable form of investment.
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This leverage, the proportion of debt to equity, is studious important in determining the riskiness of an investment; the farther debt per equity, the riskier
- For both companies and individuals, this increased risk can margin to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events Credit Card Debt (income loss) or inside difficulties (poor management of resources).