[Verse 1]
Meet Sarah with her credit card debt
Monthly payments she tends to forget
When income drops or expenses climb
Default becomes her paradigm
Companies face the same cruel fate
When cash flows shrink and bills can't wait
Bankruptcy courts become their stage
As creditors turn another page
[Chorus]
Credit risk means money might vanish
Borrowers crumble, lenders get damaged
Default probability times loss severity
Equals the danger in your portfolio
Spread your bets across different sectors
Geographic regions, various debtors
Correlation kills your protection plan
Diversify smart as you can
[Verse 2]
Municipal bonds from Detroit's collapse
Corporate giants having heart attacks
Sovereign debt from nations broke
Credit ratings going up in smoke
Economic downturns hit like waves
Pulling multiple ships to their graves
Industry clusters fail together
Making diversification weather
[Chorus]
Credit risk means money might vanish
Borrowers crumble, lenders get damaged
Default probability times loss severity
Equals the danger in your portfolio
Spread your bets across different sectors
Geographic regions, various debtors
Correlation kills your protection plan
Diversify smart as you can
[Bridge]
Recovery rates vary by the loan
Secured debt claims the collateral throne
Unsecured creditors get pennies back
When borrowers fall through every crack
Credit spreads widen when fear takes hold
Premium demanded for risks untold
[Verse 3]
Portfolio thinking beats single names
Concentration amplifies the flames
Ten percent exposure maximum rule
Keeps your holdings balanced and cool
Monitor ratings, watch the trends
Know where correlation begins and ends
Credit cycles boom then bust
Making risk assessment a must
[Chorus]
Credit risk means money might vanish
Borrowers crumble, lenders get damaged
Default probability times loss severity
Equals the danger in your portfolio
Spread your bets across different sectors
Geographic regions, various debtors
Correlation kills your protection plan
Diversify smart as you can
[Outro]
Expected loss equals probability times exposure
Times the loss given default disclosure
Unexpected loss brings volatility
Credit VaR shows possibility
Manage the risk but never ignore
Default can knock down any door