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August 2016

In this webinar Moody’s Analytics discuss the Marco-economic and credit market conditions likely to affect the future risk of default for Chinese companies; way to measure and manage the default risk of Chinese firms, and strategies for early detection of default risk.

Related Insights

Weekly Market Outlook: Inflation's Bad Breadth May Help Contain Interest Rates

Not too long ago, the high-yield bond spread swelled and the projected default rate soared. However, that intensification of credit stress would be quickly reversed mostly because debt repayment problems were largely confined to the oil and gas industry. In other words, the late 2015 and early 2016 worsening of corporate credit conditions lacked enough breadth to endanger both financial stability and the business cycle upturn.

May 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Credit Improves as Debt Growth Slows and Equities Rally

The worrisome overvaluation of US equities has benefits for credit. It firmed US corporate credit quality via an increase in the number of rating upgrades ascribed to mergers, acquisitions, divestitures, and infusions of common equity capital. And at the same time it reduced the frequency of downgrades stemming from highly leveraged takeovers, stock buybacks, and special dividends. As shown by Q4-2016's smallest amount of nonfinancial-corporate net borrowing since Q4-2010 and the lowest reading on net stock buybacks since Q2-2014, 2016's equity rally has effectively increased reliance on common equity capital, while dulling the incentive for companies to buy back their often richly priced equity shares.

April 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Credit Cycle Enjoys a Respite

For the first time since 1987-1988, the US credit cycle has stabilized following a surge by credit rating downgrades relative to upgrades, a jump by the high-yield default rate, and a pronounced widening by corporate bond yield spreads. After six years at 49% of US high-yield credit rating revisions from July 2009 through June 2015, downgrades soared to 71% in the year-ended June 2016. Then downgrades eased to 58% for the year-ended March 2017 and sank to 48% during Q1-2017.

April 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Bond Yields Will Fall When the Equity Bubble Bursts

Stocks are not cheap. Thus, equities are vulnerable to a deep slide in the event profits contract or interest rates undergo a disruptive climb. The latter would probably include an increase by the 10-year Treasury yield to at least 2.75%.

April 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Near Perfect Equity Market Firms Credit

High-yield bonds endured a wild ride in March. A composite speculative-grade bond yield started the month at 5.65% for its lowest reading since September 2014. However, by March 14 this had swiftly climbed to 6.34%, which was the highest since December 16, 2016, only to suddenly drop to 6.04% as of March 29.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Rate Hike Won't Hurt Bonds Amid Low Inflation

Corporate bond yield spreads often are well behaved during the early installments of a series of Fed rate hikes. Because rate hikes ordinarily occur amid above-average business activity and profits growth, the high-yield bond spread shows a decidedly below-trend median of 387 bp for those spans of the last 30 years that start with a rate hike and end with the final month prior to a rate cut.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Less Borrowing Amid Faster Profits Trims Risk

In 2016's final quarter, US nonfinancial companies markedly reduced net borrowing. In turn, for the first time in more than two years, corporate debt grew more slowly than both internal funds and pretax profits. Election-related uncertainties and an overvalued equity market helped to explain the slowdown in borrowing, while a firming of industrial commodity prices supplied lift to corporate earnings. Going forward, leveraging may continue to fade until the next erosion of profitability triggers an increase in debt-funded equity buybacks that intend to buttress earnings per share.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Skinny Caa Spread Defies Default Outlook

An exceptionally thin median spread for default-prone Caa-rated bonds reflects an unsustainably high tolerance of credit risk. Often, an ultra-thin spread for Caa-grade bonds is followed by wider yield spreads for both the Caa category and the entire high-yield market.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

No Surprises: Gaining Strategic Insight Through Stress Test Simulation

Since the global financial crisis, bank stress testing has become an essential part of regulators’ toolkits for monitoring and maintaining financial stability. The impact of a bank’s stress test results can have large implications for its operations, its shareholders, and for the economy at large. Anticipating the results of a formal stress test through simulation can enhance a bank's internal risk management as well as provide strategic business insight.

December 2016 WebPage David Hamilton

Sovereign Risk Report: Likely Fed Rate Hike and Oil Prices Grab Market Attention

Global financial markets are focused on signs that the US Federal Reserve will lift its policy rate at its December 13-14 meeting. Oil prices also preoccupied investors, as crude oil prices continued to recover this past week.

November 2016 Pdf Irina Baron, Xian Li

US Political Shock Jolts Global Credit Risk Measures | Moody's Analytics

Donald Trump's stunning win over his Democratic Party opponent, Hillary Clinton, was the dominant factor driving global market-based measures of credit risk since the election.

November 2016 Pdf Irina Baron, Xian Li

CDS-Implied EDF™ Measures and Fair Value CDS Spreads – At a Glance

CDS-Implied EDF (CDS-I-EDF) measures are physical default probabilities derived from credit default swap (CDS) spreads. For entities with both publicly traded equity and liquid CDS transactions, CDS-I-EDF measures provide an alternative assessment of default risk that can be directly compared with default probabilities (PDs) calculated by the Public Firm EDF model. For entities without publicly traded equity, CDS-I-EDF measures expand the default probability coverage of CreditEdge, Moody's Analytics suite of industry-leading credit metrics that incorporate signals from equity and credit markets.

November 2016 Pdf Irina Baron

Deutsche Bank's Adversity Lifts its Probability of Default

Germany's biggest bank, Deutsche Bank AG, faced intense scrutiny from investors in recent months. The company's EDF™ (Expected Default Frequency) has shown signs of deterioration as the company's financial risk has been elevated, as measured by its market leverage.

October 2016 Pdf Irina Baron

Brexit Fallout: Using Scenario Analysis and a Systemic Risk Approach to Assess Corporate Credit Risk

The June 23rd referendum, in which UK voters chose to leave the European Union, has fanned financial volatility and may precipitate a recession in the UK economy. The updated economic and financial outlook has implications for corporate credit risk.

August 2016 WebPage Glenn Levine, Danielle Ferry, Dr. Samuel W. Malone

Angang Steel's Credit Risk Rises As Local Rating Agencies Remain Sanguine | Moody's Analytics

Angang Steel is one of China's largest steel producers, but in recent times slower economic growth, coupled with elevated steel production, have put downward pressure on prices and revenues.

June 2016 Pdf Irina Baron, Glenn Levine

Probability-Weighted Outcomes Under IFRS 9: A Macroeconomic Approach

In this article, we discuss development of a framework that addresses the forward-looking and probability-weighted aspects of IFRS 9 impairment calculation using macroeconomic forecasts. In it, we address questions around the practical use of alternative scenarios and their probabilities.

June 2016 WebPage Barnaby Black, Glenn LevineDr. Juan M. Licari

A Simulated Stress Test of the Corporate Loan Portfolios of Australia's Largest Banks

This whitepaper discusses the findings of our simulation exercise to the corporate loan portfolios of Australia's five largest banks.

March 2016 Pdf Danielle Ferry, David HamiltonGlenn Levine

Simulating a Stress Test of the Corporate Loan Portfolios of Australia's Largest Banks

In this webinar, David Hamilton presents the results of a simulated stress test of the corporate loan portfolios of Australia’s five largest banks (by asset size) conducted by Moody’s Analytics.

March 2016 WebPage David Hamilton

Measuring Systemic Risk in the SE Asia Financial System

In this webinar, Moody’s Analytics combines the techniques of network analysis with the richness of Moody’s CreditEdge™ platform to compute systemic risk measures spanning the last 20 years for five major southeast Asian economies.

June 2015 WebPage David HamiltonDr. Samuel W. Malone

Measuring Systemic Risk in the Southeast Asian Financial System

This article looks back at the Asian financial crisis of 1997-1998 and applies new methods of measuring systemic risk and pinpointing weaknesses, which can be used by today’s financial institutions and regulators.

Identifying At-Risk Names in Your Credit Portfolio Webinar

Identifying At-Risk Names in Your Credit Portfolio

October 2013 WebPage David Hamilton, Irina Makarova

Best Buy Co., Inc.

Through much of its history Best Buy was considered one of the most successful retail stores in the US. However, since 2010 the electronics retailer has faced business and financial challenges that are placing increasing pressure on its credit quality.

October 2012 Pdf David Hamilton, Irina Makarova

Research in Motion Ltd.

RIM does not have traded bonds or CDS from which to observe credit spreads, and is not rated by Moody's Investors Service. However, Moody's Analytics' public EDF measure effectively captures and quantifies changes in the company's credit risk.

June 2012 Pdf Irina Makarova, David Hamilton

Shandong Helon Company Ltd.

The EDF measure for Shandong Helon Co.'s has signaled a high level of default risk since the time of the financial crisis in 2008. In 2010 its EDF measure began to trend in a range suggesting heightened risk of default, and in June 2011 its EDF jumped from 2.6% to over 7%. Its EDF measure jumped again in April 2012 to over 10%.

May 2012 Pdf David Hamilton, Irina Makarova

Bankia S.A.

Bankia SA's one-year probability of default jumped sharply in May, from 0.45% at the start of the month to 2.24% as of May 24.

May 2012 Pdf Irina Makarova, David Hamilton

Through-the-Cycle EDF™ Credit Measures

Through-the-Cycle EDF™ (TTC EDF) credit measures are one-year probabilities of default that are largely free of the effect of the aggregate credit cycle, primarily reflecting a firm's enduring, long-run credit risk trend. TTC EDF measures are useful in applications in which a stable PD input is desirable, and for which the expected cost of adjusting credit exposures as PD signals change outweighs the expected cost of negative credit events (such as default).

August 2011 Pdf David Hamilton, Min Ding, Zhao Sun

Banks and their EDF™ Measures Now and Through the Credit Crisis: Too High, Too Low, or Just About Right?

Financial institutions, particularly banks, were at the heart of the credit crisis and subsequent recession, and defaulted at unprecedented rates. It will be a long time before names like Lehman Brothers, Bear Stearns, and Northern Rock fade from the memories of investors and risk managers. Not surprisingly, the experience has redoubled interest in finding effective and efficient ways to provide early warning of credit distress for such entities.

December 2010 Pdf Tony Smith, David Munves, David Hamilton