This paper proposes a new explanation for the excess co-movement in default risk observed across borrowers. We develop a model with endogenous default decisions in a multi-borrower economy, where a negative idiosyncratic shock to one borrower reduces its creditworthiness while simultaneously increasing the relative economic importance of another borrower. The resulting increase in systematic risk raises the borrowing costs of the latter, accelerating its default decision, particularly when short-term refinancing is required. This mechanism is a source of default risk dependence distinct from shared fundamental shocks. Moreover, the embedded leverage in equity enables our model to jointly explain the excess co-movement in default probabilities, credit spreads, equity returns, and equity volatilities that we document across U.S. industries.