Final answer:
The shorter the maturity schedule of a firm's debt, the higher the risk of non-payment. Short-term debt obligations increase pressure on cash flows, making the borrower seem riskier, especially if they've previously missed payments or if interest rates have risen.
Step-by-step explanation:
The shorter the maturity schedule of a firm's debt obligations, the higher the risk the firm will be unable to make principal and interest payments. This is due to the increased pressure on the firm's cash flows in the short term, as they need to come up with the necessary funds to satisfy debt obligations sooner rather than later. For example, a borrower who has been late on a number of loan payments is seen as a higher risk, thus making the debt they owe less attractive to potential buyers or investors. Similarly, in a rising interest rate environment, older loans with lower rates become less appealing, which can also impact the firm’s ability to refinance its debt.