EAD (Exposure at Default)
Corporate Credit Analysis glossary · Credit Metrics & Debt Schedule Modeling
Definition
The dollar amount outstanding on an exposure at the time of default. Includes drawn amounts plus a credit-conversion-factor-adjusted portion of undrawn commitments.
EAD (Exposure at Default) in plain English
Exposure at Default is simply: if this borrower stops paying, how many dollars are we actually on the hook for at that moment? It's not the whole loan they were approved for — it's what they've truly borrowed so far, plus a smart guess about how much MORE they'll grab from any unused credit line right before they go under. That guess is the 'credit-conversion factor,' because troubled borrowers tend to max out available cash while they still can. Picture a $10,000 credit card where someone has spent $6,000: EAD is that $6,000 plus the extra they'd likely charge in a panic before defaulting.
Also called: Exposure at Default
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