week 3 rating agency model.pptx - CREDIT RISK MANAGEMENT Week 3 Rating agency models and measures Stuart School of Business IIT MSF555 Fall 2019

week 3 rating agency model.pptx - CREDIT RISK MANAGEMENT...

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CREDIT RISK MANAGEMENT Week 3: Rating agency models and measures Stuart School of Business, IIT MSF555, Fall 2019 Professor Yiwei Fang
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Learning objectives Rating agency symbols and terminology Moody’s Rating Symbols and Definitions Rating methodology: an example for auto industry Rating agency report: Moody’s Annual Default Study: Corporate Default and Recovery Rates, 1920 – 2017 ? report_id=1751185&show_pdf_data=true S&P Global Corporate Default Study and Rating Transitions, 2017 https:// porate+Default+Study/a4cffa07-e7ca-4054-9e5d-b52a627d8639
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Rating agencies The ratings agencies have long history in providing the estimates for creditworthiness of a firm. Firms could issue debt at a lower cost if they were evaluated by a credit rating agency – a third party, rather than being unrated. Three big rating agencies Moody’s S&P Fitch #4 Morningstar Risk Management and Financial Institutions 4e, Chapter 1, Copyright © John C. Hull 2015 3
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Credit rating It measures the creditworthiness of a particular debt obligation. It gives forward-looking opinions of the relative credit risk. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of default on contractually promised payments. Shorter term ratings are assigned to obligations with an original maturity of 13 months or less. Risk Management and Financial Institutions 4e, Chapter 1, Copyright © John C. Hull 2015 4
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Find another example of rating history/report for a company 17+Annual+Global+Corporate+Default+Study/a4cffa07-e 7ca-4054-9e5d-b52a627d8639
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An example of credit rating report Detailed rating definitions and methodologies are illustrated below: mbolsandDefinitions.pdf
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  • Spring '14
  • MichaelK.Ong
  • Credit rating, Collateralized debt obligation, Credit rating agency, John C. Hull

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