Fixed income -credit risk

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6 Terms

1
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what is credit risk

risk of loss from a borrower’s failure to make full and timely payments

2
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expected loss (formula)

probability of default x loss given default

3
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what are the bottom-up 5Cs

  • capacity

  • capital

  • collateral

  • covenants

  • character

4
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what are the top-down 3Cs

  • conditions

  • country

  • currency

5
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what are zombie firms

companies that struggle to repay debt, relying on continued refinancing to stay afloat instead of generating sufficient profits to cover interest payments and principal

6
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what is the altman Z-score

a default prediction model

  • Z < 1,81 → high bankruptcy probability

  • Z >= 1,81 <= 3 → no clear bankruptcy risk

  • Z > 3 → low bankruptcy probability