Blackstone Credit, Inc., made a loan to a small start-up firm. The firm grew rapidly,
and it appeared that Blackstone had made a good credit decision. However, the firm
grew too fast and could not sustain the growth. It eventually failed. Blackstone had
initially estimated its exposure at default to be $1,200,000. Because of the firm’s
rapid growth and resulting increases in the line of credit, Blackstone ultimately lost
$1,550,000. In terms of credit risk, this is an example of:
ADefault on payment for goods or services already rendered.
BA more severe loss than expected due to a ratings downgrade by a rating agency.
CA more severe loss than expected due to a greater than expected exposure at the time of a default.
DA more severe loss than expected due to a lower than expected recovery at the time of a default.
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