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Debt Overhang

Debt Overhang

Debt overhang refers to a debt burden so large that an entity cannot take on additional debt to finance future projects. This includes entities that are profitable enough to be able to reduce indebtedness over time. A debt overhang serves to dissuade current investment, since all earnings from new projects would only go to existing debt holders, leaving little incentive and ability for the entity to attempt to dig itself out of the hole.

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