Toxic Debt

Toxic Debt
Debt that has a lower chance of being repaid with interest. Toxic debt is toxic to the person or institution that will receive the payments.

This debt generally adheres to one of the following criteria: default rates for the particular debt are in the double digits, more debt is accumulated than what can comfortably be paid back, the interest rates of the obligation are subject to discretionary changes. Any debt could potentially be considered "toxic," if it imposes harm onto the financial position of the holder.

Debt is not always bad, especially if you are the lender and the borrower is making the payments. If the payments on these loans stop coming in, or are expected to stop, the debt becomes known as toxic debt. The historical costs of toxic debt securities are higher than the current market price. This can often result from unjustified high credit ratings which implies that the risk of default on the security is much lower than fundamental analysis would suggest. Junk bonds are not classified as toxic debt upon purchase, because the buyer is aware of the underlying risk of these securities.

Investment dictionary. . 2012.

Look at other dictionaries:

  • toxic debt — UK US noun [U] FINANCE ► debt that has little chance of being paid back or of being paid back with interest, or an asset of which this is true: »The trading of toxic debt was one of the major causes of the financial crisis. »Banks are currently… …   Financial and business terms

  • toxic debt — noun Debt acquired through normal financial transactions which later proves to have little or no actual value See Also: toxic asset …   Wiktionary

  • toxic debt — /tɒksɪk ˈdɛt/ (say toksik det) noun a debt which, although initially established as a legitimate business transaction, proves subsequently, as a result of change in the fiscal environment, to be financially worthless to the lending body, as the… …   Australian English dictionary

  • toxic — /ˈtɒksɪk/ (say toksik) adjective 1. of, relating to, affected with, or caused by a toxin or poison. 2. poisonous. 3. detrimental to a good outcome; extremely disadvantageous: toxic assets; toxic debt. 4. Colloquial harmful; destructive: a toxic… …   Australian English dictionary

  • toxic */ — UK [ˈtɒksɪk] / US [ˈtɑksɪk] adjective 1) poisonous and harmful to people, animals, or the environment highly toxic industrial chemicals 2) business used to describe a loan or other financial agreement which causes very serious business problems… …   English dictionary

  • toxic asset — /tɒksɪk ˈæsɛt/ (say toksik aset) noun a financial asset, the value of which has been revealed to be significantly diminished because it is affected by toxic debt …   Australian English dictionary

  • Debt overhang — is when an organization (for example, a business, government, or family) has existing debt so great that it cannot easily borrow more money, even when that new borrowing is actually a good investment that would more than pay for itself. This… …   Wikipedia

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  • Toxic Assets — An asset that becomes illiquid when its secondary market disappears. Toxic assets cannot be sold, as they are often guaranteed to lose money. The term toxic asset was coined in the financial crisis of 2008/09, in regards to mortgage backed… …   Investment dictionary

  • Debt Exchange — DebtX s headquarters at 133 Federal Street in downtown Boston The Debt Exchange (also known as DebtX ) is one of the world s largest loan sale advisors for the sale of commercial, consumer and specialty finance debt. The company is engaged by… …   Wikipedia

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