This paper proposes a new explanation for the observed co-movement in default risk across borrowers. In our equilibrium model, a negative idiosyncratic shock to one borrower reduces its creditworthiness but also makes another borrower a relatively larger player in the economy, increasing its systematic risk. This results in higher debt costs for the latter borrower, tilting its decision towards an earlier default, especially when debt needs to be refinanced more rapidly. We thus identify a novel source of endogenous default risk linkages, which cannot be explained by commonality in fundamentals alone. Given the embedded leverage in equity, this model jointly generates positive excess co-movement in default probability, equity excess returns, and equity return volatility, aligning with our empirical evidence across U.S. industries. These results offer important insights into the interplay between credit and equity markets in a multi-borrower economy.