Cross-Default
Corporate Credit Analysis glossary · Credit Agreements & Covenants
Definition
A provision whereby default on one debt instrument triggers default on another, subject to threshold amounts (e.g., $25M minimum). Limits the borrower's ability to selectively default.
Cross-Default in plain English
A cross-default clause links a borrower's loans together so that failing to pay one can automatically count as failing on the others too. The point is to stop a company from playing favorites — paying the lenders it likes while stiffing the rest — since one missed payment can trip all the loans at once. It usually only kicks in above a set size (say, $25 million), so a tiny slip doesn't blow everything up. It's like a group of friends agreeing that if you ghost any one of them on a debt, you're considered to have ghosted all of them — which gives every lender a strong reason to keep the borrower honest.
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