Asset-liability mismatch
Also called: ALM mismatch, maturity mismatch
Funding long-term assets with short-term borrowing, so that debts fall due long before the assets produce enough cash to repay them.
The borrower depends on lenders continuing to refinance. When confidence falls, refinancing can stop suddenly, and the borrower can default even if its assets are valuable over the long run.
Example
A toll road earning cash over 20 years funded with 90-day commercial paper must refinance every quarter.
Learn more in these lessons
- Case study: a debt-funded group in crisis (IL&FS, 2018)What can investors learn from the IL&FS crisis of 2018?
Related terms
Spotted a mistake or something unclear? Report it by email. Here is how corrections work.