Is a financial statement decision useful? Is it informative enough to make a loan, acquire a company, increase a limit or move a borrower to work out? The quality of financial statements is a concern for all firms, especially as the demand for faster and more accurate due diligence grows.
Using a unique data set pooled from multiple U.S. ﬁnancial institutions, we empirically study the credit line usage of middle-market corporate borrowers.
RiskCalc™ EDF™ (Expected Default Frequency) values and agency ratings are widely used credit risk measures. RiskCalc EDF values typically measure default risk for private companies, while agency ratings are only available for rated companies. A RiskCalc EDF value measures a company's standalone credit risk based on financial statement information, while an agency rating considers qualitative factors such as Business Profile, Financial Policy, external support, and country-related risks. Moody's Analytics new Sovereign & Size-Adjusted EDF-Implied Rating Template combines RiskCalc EDF values with additional factors to provide a rating comparable to agency ratings for private companies. The new template applies to RiskCalc EDF values across numerous geographies and regulatory environments. With the new template, users can generate a rating more comparable to an agency rating than RiskCalc EDF values or EDF-implied ratings. Analyzing data from 3,900+ companies in 60+ countries, we find that sovereign rating and total asset size, in addition to EDF value, have a statistically significant impact on an agency rating — our quantitative template incorporating these three variables reliably estimates agency ratings in a robust fashion.
This report outlines a practical approach for using RiskCalc EDF credit measures to effectively monitor large portfolios of private firms and to proactively identify at-risk names. The RiskCalc Early Warning Toolkit Excel add-in is an easy to use, yet comprehensive tool that allows users to focus costly and scarce resources on a highly targeted selection of the most at-risk names in their portfolios. This research for private firms compliments previous research on Early Warning Toolkit for public firms. The Early Warning Toolkit identifies at-risk names within a private firm portfolio well before default, using a number of different EDF-related risk metrics.
With the new CECL and IFRS 9 requirements, this document formally investigates and summarizes the term structure properties consistently seen across public, private, and rated firms.
With an immense amount of available data generated worldwide within the last two years, the next evolution of banking analytics will include information from a variety of open and closed sources.