PD (Probability of Default)
Corporate Credit Analysis glossary · Credit Metrics & Debt Schedule Modeling
Definition
The probability of default within a specified time horizon. A foundational credit-risk input; mapped to ratings (e.g., BBB ≈ 0.2% 1-year PD, single-B ≈ 4-5%, CCC ≈ 25%+).
PD (Probability of Default) in plain English
PD is simply the estimated chance that a borrower fails to pay as promised within a set window of time, usually one year. It's the starting point for pricing risk: a lender who thinks there's a 25% chance you don't pay back will charge far more (or refuse) than one who sees a 0.2% chance. Credit ratings are basically shorthand for these odds, so a solid BBB borrower has roughly a 1-in-500 yearly default chance, a shakier single-B is around 1-in-20, and a fragile CCC is worse than 1-in-4. It's like a weather forecast for "will this loan blow up," expressed as a percentage.
Also called: Probability of Default
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