Question

From the point of view of a borrowing corporation, what are credit and repricing risks?

Answer 1

For corporate borrower, it is especially important to distinguish between credit risk and repricing risk because credit risk is possibility that the creditworthiness of the buyer would be changed through credit rating by lender.

Credit risk is risk that creditworthiness of borrower at the time of renewing a credit is reclassified by the lender. This can result in changing fees and changing interest rate as well as altered credit line commitment or even denial. This is also termed as rollover risk.

Repricing risk is the risk of changes in interest rate charged at the time of financial contract rate is reset. Repricing risk can lead to higher cost of the borrower and that a borrower is renewing a credit will face current market conditions on the base rate used for financing.