Refinancing Risk

Refinancing risk is the risk that a borrower may be unable to replace an existing debt with new debt at favorable terms when the debt matures. This risk is particularly relevant when interest rates rise or credit conditions tighten, making it difficult for borrowers to secure new financing at acceptable rates. Refinancing risk can affect both individuals and corporations, particularly those that rely heavily on short-term debt or loans that need to be rolled over regularly.

Example

A corporation with a large amount of short-term debt faces refinancing risk if credit conditions worsen, making it difficult or costly to refinance its debt when it comes due.