Impairment
Private Credit glossary · Documentation, Covenants & Terms
Definition
A permanent reduction in the fair value of a loan below its cost basis, resulting from deterioration in the borrower's creditworthiness or ability to repay.
Impairment in plain English
Imagine you lent a friend $100 expecting to be paid back in full — then you find out he lost his job and honestly can't repay most of it. Impairment is the moment a lender officially admits that a loan is now worth less than what they put into it, because the borrower's finances have gotten worse and full repayment is no longer realistic. It's not a temporary dip that might bounce back; it's the lender writing down the loan's value on their books to face reality. Investors care because an impairment is a red flag that real money has likely been lost, not just a paper wobble.
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