The phrase "potential default" means that there is a possibility or chance that someone may not be able to pay back the money they owe. Full definition
Thus, even if default doesn't actually occur, the ramifications of potential default could be just as bad. (thecollegeinvestor.com)
However, if you do decide to lend to high yielding borrowers you need to be comfortable with a higher potential default risk of the borrowers. (finance-loans.org)
These are discussed in connection with potential default on a federal debt because that would impact the bond market and in turn would have a huge impact on the value of privately issued bonds. (politics.stackexchange.com)