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Moody's Analytics Insights

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Sovereign & Size-Adjusted EDF-Implied Rating Template (for Private Firms)

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.

December 2018
Maria Buitrago, Uliana Makarov,  Dr. Janet ZhaoDr. Douglas Dwyer


Identifying At-Risk Names in Your Private Firm Portfolio — RiskCalc Early Warning Toolkit

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.

November 2018
Ziyi Sun,  Dr. Janet Zhao, Gustavo Jimenez

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Equity-at-Risk and Transfer Pricing: Annualised Expected Loss versus Cumulative Expected Loss

This article is intended as guidance for transfer pricing professionals in Luxembourg who are considering the equity-at-risk following the calculation of a loan's expected loss when using Moody's Analytics tools. This article does not provide final decision-making processes, which remain at the discretion of the transfer pricing professional, according to the specific case. This article is intended to create elements of thought and paths to economically and financially sound results.

November 2018
Christophe Marinier

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Identifying At-Risk Firms in Your Private Firm Portfolio

Identifying At-Risk Firms in Your Private Firm Portfolio

October 2018
Dr. Douglas Dwyer, Gustavo Jimenez , Ziyi Sun

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Webinar: Auto Lease Pricing Under Economic Uncertainty

Join us as Lead Auto Economist, Michael Vogan examines the recent performance of the used car market and lease residuals portfolios.

September 2018

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August 2018 U.S. Middle Market Risk Report

Private firm default rates have declined steadily during the past five years. At 1.4%, the rolling 12-month default rate is down 74% from its September 2009 peak of 5.2%. This trend has been driven primarily by a decline in the charge-off rate, now at its lowest level in ten years. In addition, the percentage of borrowers in non-accrual status has decreased 56% since September 2009. The number of borrowers rated “Substandard” has seen a steady increase since the first quarter of 2016, above pre-crisis levels, reflecting banks' cautious lending practices.

August 2018
Irina Korablev, Lin Moon, Stephanie Yu

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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
Masha Muzyka, Jin Oh

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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

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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