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Article

Weekly Market Outlook: Base Metals Price Slump May Dispute Benign Default Outlook

New signs of industrial commodity price deflation have grabbed the attention of financial markets. Nevertheless, the latest slide by Moody's industrial metals price index has yet to even remotely approach its 26.1% average year-over-year plunge of the six-months-ended January 2016. The two major takeaways from the latest slide by base metals prices are global industrial activity has subsided and any stay by the 10-year U.S. Treasury yield above 3% will be short-lived.

August 2018 Pdf John Lonski, Yukyung Choi, Ryan Sweet, Michael Ferlez, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell
Article

Weekly Market Outlook: Profit Outlook Offsets Record Ratio of Corporate Debt to GDP

A high ratio of debt to GDP may be manageable, that is up until the income flow servicing such debt recedes. During the past several years, the ratio of U.S. nonfinancial-corporate debt to GDP seems to have lost its ability to explain both the magnitude and the direction of the high-yield default rate.

August 2018 Pdf John Lonski, Yukyung Choi, Njundu Sanneh, Ryan Sweet, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell
Article

Weekly Market Outlook: Upon Further Review, Debt to EBITDA Still Falls Short as an Aggregate Predictor

Last week's commentary began with a reference to the weak predictive power of an unadjusted median ratio of corporate debt to EBITDA for publicly held, nonfinancial-company issuers of high-yield debt. However, one reader was gracious enough to take the time to alert me to a major shortcoming of the median ratio of corporate debt to EBITDA, especially as it applies to high-yield issuers. EBITDA—or earnings before interest, taxes, depreciation and amortization—can be negative, especially among companies having speculative-grade ratings. As a result, an unadjusted median ratio of corporate debt to EBITDA often understates how burdensome outstanding debt is relative to the EBITDA of high-yield issuers.

August 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Njundu Sanneh, Ryan Sweet, Reka Sulyok, Barbara Teixeira Araujo, Katrina Ell
Webinar-on-Demand

CECL Disclosures – Required and Beyond

Our experts, Masha Muzyka and Jin Oh, cover transition disclosures focus areas, potential implication of the methodology chosen to the expected disclosures and ECL disclosure best practices emerging to date.

July 2018 WebPage Masha Muzyka, Jin Oh
Presentation

CECL Disclosures – Required and Beyond

CECL Disclosures – Required and Beyond

July 2018 Pdf Masha Muzyka, Jin Oh
Article

Weekly Market Outlook: Ratio of Debt to EBITDA Is a Poor Predictor of the Default Rate

The median ratio of interest expense to EBITDA offers another way of explaining the high-yield default rate. This approach fares far better when compared to explaining the default rate with the median ratio of debt to EBITDA. Since year-end 2005, the quarterly default rate generates a relatively meaningful correlation of 0.75 with the median ratio of interest expense to EBITDA from one to two quarters earlier.

July 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Ryan Sweet, Michael Ferlez, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell, Faraz Syed
Presentation

Choosing the Right Cloud-Based Credit Origination Solution

Choosing the Right Cloud-Based Credit Origination Solution

July 2018 Pdf Annie Choi, Jill Coppersmith, Brian Cox
Webinar-on-Demand

Choosing the Right Cloud-Based Credit Origination Solution

An evaluation of features, functions, and security

July 2018 WebPage Annie Choi, Jill Coppersmith, Brian Cox
Article

Weekly Market Outlook: Base Metals Price Drop Suggests All Is Not Well

Though it goes practically unmentioned, one of the more unexpected developments of late has been the stunning collapse of Moody's industrial metals price index. In part, the industrial metals price index's average of July-to-date is a deep 8.2% under its June 2018 average because of uncertainties stemming from trade-related issues. Since worries surrounding a trade war came to the fore following June 14's close, the base metals price index has sunk by 13.0%. Nevertheless, the base metals price index's month-long average had peaked some time ago in February 2018, where the subsequent slide by the index through mid-June reflected a loss of momentum for global industrial activity.

July 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell
Presentation

Incorporating Economic Forecasts into CECL

CECL will require institutions to incorporate macroeconomic forecasts formally into their loss allowance estimates for the first time. There are a number of ways in which this can be achieved as the CECL guidelines don't specify any one particular approach. In this presentation, we discuss some of the options that institutions have for incorporating economic forecasts into their expected loan loss reserve calculations. We discuss the benefits and costs of each approach and provide practical recommendations based on institution size and complexity. We also show a simple solution for calculating the lifetime expected losses for consumer loans for different products.

July 2018 Pdf Dr. Sohini Chowdhury
Presentation

Challenges in CECL Implementation

Challenges in CECL Implementation

July 2018 Pdf Robby Holditch
Article

Weekly Market Outlook: Markets Suggest the U.S. Fares Best in a Trade War

Financial markets believe that the U.S. is likely to fare better than most other major economies in an all-out trade war. This is because (i) international trade accounts for a smaller share of U.S. business activity, (ii) the U.S. imports far more than it exports, and (iii) the U.S. now well outperforms other major economies. Nevertheless, though the U.S. is better able the withstand the direct and collateral damage of a trade conflict, it is still expected suffer casualties in a trade war. And such casualties might well influence the outcome of November's Congressional elections.

July 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Reka Sulyok, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed
Presentation

Simple But Not Simpler: Day 1 Modeling Approaches

Simple But Not Simpler: Day 1 Modeling Approaches. This presentation is a review of simple approaches available to community banks on the road to their CECL journey.

July 2018 Pdf Laurent Birade

Chartis Research: Moody's Analytics Balance Sheet Management Vendor Analysis

Chartis Research is the leading provider of research and analysis on the global market for risk technology. This report focuses on Moody's Analytics Balance Sheet Management solution.

July 05, 2018 Pdf
Article

Weekly Market Outlook: Outstandings of Rated U.S. Corporate Bonds Dip from 2018's First to Second Quarter

According to Moody's Capital Markets Research Group, second-quarter 2018's outstandings of Moody's-rated U.S. corporate bonds excluding ABS and MBS rose by 3.3% year-over-year to $7.212 trillion, which was a slight 0.6% under first-quarter 2018's record high of $7.259 trillion. The second quarter's yearly increase of 3.3% was much slower than the 6.3% yearly increase of 2018's first quarter and was the smallest since the 2.1% of 2015's final quarter. The -0.6% dip by U.S. corporate bonds outstanding from the first to the second quarter of 2018 was only the third such sequential decline by the rated outstandings of U.S. corporate bonds during the past five years. The other two quarterly retreats were those of 0.2% of 2016's final quarter and 5.7% in 2015's final quarter.

July 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell, Veasna Kong, Alaistair Chan
Article

Weekly Market Outlook: Trade War Will Turn Ugly if Profits Shrink

Let's start with the good news of operating profits' much faster rise relative to the growth of corporate debt. During 2018's first quarter, the 9.7% year-to-year advance by the pretax operating profits of U.S. nonfinancial corporations far outran the accompanying 5.2% increase by nonfinancial corporate debt. Moreover, for the year-ended March 2018, operating profits' 7.2% increase also outpaced the 5.9% growth of corporate debt. In turn, the moving yearlong ratio of debt to operating profits for nonfinancial corporations eased from third-quarter 2017's cycle high of 699% to the 691% of 2018's first quarter.

June 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell, Veasna Kong
Webinar-on-Demand

CECL: The "Easiest" Implementation

Our subject matter experts, Robby Holditch, Director, and Jin Oh, Director, discuss critical steps in meeting the new CECL standard.

June 2018 WebPage Robby Holditch
Article

Making Smarter Small Business Lending Decisions

Lenders and credit analysts have been challenged in recent years to make credit decisions quicker and more cost-effective. This pressure has increased given recent competition from growing and maturing fintech lending platforms. While it can be difficult to obtain data on a small business, we believe that our findings demonstrate a scoring approach that supports small business lenders and the efficient use of data sources that are readily available.

June 2018 Pdf
Presentation

The “Easiest” Implementation – Why There Is No Easy Button

The “Easiest” Implementation – Why There Is No Easy Button

June 2018 Pdf Robby Holditch
Article

Weekly Market Outlook: Investment-Grade Looks Softer and High-Yield Looks Firmer Compared With Year-End 2007

Since June 14's close, or immediately prior to the latest bout of trade-related stress, the cumulative 0.8% decline by the market value of US common stock has been shallower than the accompanying 2.7% drop by the blue-chip Dow Jones Industrial Average. By comparison, China's Shanghai Composite stock price index incurred a much deeper setback of 5.5%. The latest installment of trade friction has yet to roil all financial markets. The recent VIX of 14.2 points remained well below its long-term median of 15.9 points notwithstanding heightened financial market volatility.

June 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell
Article

Weekly Market Outlook: May's High-Yield Bond Offerings Plunge as New Loan Programs Soar

May 2018's 52% year-to-year plunge by US$-denominated high-yield bond issuance to $20.96 billion grossly understated the overall pace of borrowing by high-yield companies. In stark contrast, May 2018's newly-rated bank loan programs graded Baa or lower soared higher by 52% from a year earlier to a record $104.64 billion. The latter surpassed January 2017's former zenith of $91.42 billion and was well above November 2007's $81.80 billion high of 2002-2007's business cycle upturn. By December 2007, the Great Recession was officially under way.

June 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Reka Sulyok, Katrina Ell
Presentation

Dr. Kohl: Ag Trends and Borrower Behaviors

Dr. Kohl: Ag Trends and Borrower Behaviors

June 2018 Pdf Doug Johnson, David Kohl
Webinar-on-Demand

Dr. Kohl: Ag Trends and Borrower Behaviors

Moody's Analytics hosted special guest presenter and agricultural economic expert, Dr. David Kohl, for a special session on the outlook of ag lending in 2018.

June 2018 WebPage Doug Johnson, David Kohl
Presentation

Be Reasonable: Creating Supportable Forecast Scenarios for CECL

This presentation discusses the CECL requirement of reasonable and supportable forecasts. We discuss what makes an economic scenario reasonable and supportable and discusses structural forecast model methodology. We also compare customized, standard and off-the-shelf scenarios and examine forecasting credit losses.

June 2018 Pdf Dr. Cristian deRitis
Whitepaper

Cloud-Based Credit Origination Solutions are Not all the Same

There are many benefits to using cloud-based technology including faster deployments and reduced cost of ownership. Modernizing your credit origination system and process is critical to keeping up with increased consumer demand for efficiency and convenience. With an ever-growing number of SaaS credit origination solutions popping up, how do you know which technology and which provider is right for you?

June 2018 Pdf Jill Coppersmith, Anju Govil

Cloud-Based Credit Origination Solutions are Not all the Same

There are many benefits to using cloud-based technology including faster deployments and reduced cost of ownership. With an ever-growing number of cloud-based credit origination solutions popping up, how do you know which technology and which provider is right for you?

June 12, 2018 WebPage Jill Coppersmith, Anju Govil
Article

Weekly Market Outlook: Economic Growth Slows as Ratio of Debt to GDP Climbs Ever Higher

Perhaps the speed at which GDP grows relative to debt matters more than the ratio of debt to GDP. The faster GDP grows relative to debt, the lower might be the risks surrounding the repayment of debt obligations. Expressed differently, the greater the return from debt capital, the lower should be the incidence of delinquencies, charge offs, and defaults. When productively employed, debt capital can more than pay for itself. The U.S.' ratio of private and public nonfinancial-sector debt has soared from 1968's 131% to 2017's 253% of 2017. Nevertheless, the 10-year average annualized growth of U.S. real GDP decelerated from the 4.9% of the span-ended 1968 to the 1.4% of the span-ended 2017.

June 2018 Pdf John Lonski, Njundu Sanneh, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell, Veasna Kong, Faraz Syed, Martin Janicko
Article

Weekly Market Outlook: Fewer Defaults Strongly Favor a Higher Equity Market

Notwithstanding the occasional jarring setback, the market value of U.S. common stock need only rise by 4.8% in order to return to its record high of January 26, 2018. Such a recovery appears to be well within reach if profits grow. Moreover, the realization of the projected decline by the U.S.' high-yield default rate from April 2018's 3.7% to 1.5% by April 2019 implies a firming of corporate finances that can only facilitate a recovery by share prices.

May 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Ryan Sweet, Kathryn Asher, Michael Ferlez, Barbara Teixeira Araujo, Katrina Ell, Alaistair Chan, Veasna Kong, Faraz Syed
Article

Weekly Market Outlook: Higher Interest Rates Will Be the Source of Their Own Demise

The remedy of higher interest rates is taking effect. The risk of an overheating of financial markets and business activity appears to be waning. The market value of U.S. common stock has been unable to return to its record high of January 26 ever since the 10-year Treasury yield has risen from its 2.56% average of 2018's first 36 days to 2.88% since then. In turn, the S&P 500's forward-looking price-to-earnings ratio has eased from January 26's 18.7:1 to a recent 17.1:1. Not only will a less exuberant equity market rein-in wealth-driven spending by consumers, it will also curb business expenditures by containing the market valuation of business assets and increasing the cost of equity capital. Moreover, a less vibrant equity market may prompt creditors to demand additional compensation for default risk when lending to businesses.

May 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Ryan Sweet, Kathryn Asher, Michael Ferlez, Barbara Teixeira Araujo, Katrina Ell
Webinar-on-Demand

New Generation of Credit Decisioning

Increasing demand for credit has opened up the marketplace to a host of new tech-savvy lending providers. To compete in this new landscape, banks are changing their approach to credit management in order to provide faster and more convenient service to their clients.

May 2018 WebPage Nelson Almeida, Dr. Jamie Stark
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