medium · Corporate Credit Analysis
A speculative-grade issuer, NorthStar Industries, faces immediate operating stress and a looming refinancing date in 12 months.
Which shape of the cumulative probability of default (PD) curve is most characteristic of this credit profile?
- A convex curve where one-year PD is tiny but grows significantly at long horizons.
- A linear curve where the marginal PD remains constant over ten years.
- A flat horizontal line indicating that default is equally likely in any given period.
- A steeply rising curve that flattens after the first two years.
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