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We are always interested in speaking to members of the media on news and events affecting the world of corporate credit risk. We look forward to hearing from you.
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For Immediate Release
Breakthrough Risk Assessment Product Brings New Level of Accuracy to Predicting Private Company Default Risk
Moody’s KMV Launches New Version Of RiskCalc Tool, And Expects It To Become A Common Language Among Banks And Regulators
SAN FRANCISCO, April 22, 2004 - Moody's KMV, the world’s leading provider of quantitative credit-risk measurement and management tools to lenders, investors and corporations, has introduced the new version 3.1 of its popular RiskCalc product, updating a product that is currently in use at over 200 financial institutions worldwide with powerful new default prediction technology focused on private middle-market companies. Simulations by Moody’s KMV suggest that by using RiskCalc v3.1, some medium sized-banks could see their revenues improved by millions of dollars based on improvements in loan origination and monitoring practices.
The new version is the first and only on the market that offers a transparent model on a monthly basis, combining forward-looking, equity market-based credit cycle predictors with crucial, firm-specific details. Extensive research at Moody's KMV has shown the importance of incorporating such tailored information in determining the risk of private firms. The approach takes credit risk assessment in the middle market to new levels of accuracy, timeliness and specificity.
“Financial statements for private firms are typically available only annually, and analysis based solely on these statements can lead to stale credit worthiness assessments,” said Yuval Bar-Or, Director of Product Management, Moody's KMV. “Through a cohesive approach that combines a number of predictive methodologies, these new versions of RiskCalc produce a forward-looking assessment of private firm credit worthiness previously unavailable.”
EDF RiskCalc v3.1 default probabilities also provide a common metric for communicating with regulators and for characterizing loan portfolios for asset securitization transaction, portfolio acquisition due diligence and fraud detection. In addition, in keeping with Moody’s KMV’s commitment to products that both improve profitability and facilitate compliance, the new model has been designed to meet the requirements of the new Basel Capital Accords for transparency, ample documentation and validation and testing.
The model’s outputs -- Expected Default Frequencies, or EDFs -- are actual probabilities of default. The models, based on the richest and cleanest middle-market default data available, have been extensively validated, and allow objective, consistent, forward-looking, and quantitatively based decision-making. The measures can also be incorporated into valuation and portfolio models, improving the precision of credit risk management.
EDF RiskCalc v3.1 enables users to originate more efficiently (thousands of private companies may be assessed in minutes); model risk by country and sector; determine debt terms and pricing; identify early warning signals; quantify in a common framework true risks for internal and external discussion; and concentrate limited analyst resources where most needed. Financial institutions will use it to rate risk, originate and price loans, allocate capital, and monitor portfolios, all with greater efficiency. Corporations will use it to rate risk, and to assess the credit-worthiness of their customers and suppliers.
"We have been using the RiskCalc models for over four years to help us assess the credit risk of unrated corporate securities and loans that serve as collateral in CBOs and CLOs" said Noel E. Kirnon, Group Managing Director, Structured Finance, at Moody's Investors Service. "The application of these models has greatly enhanced the efficiency of the rating process for some deals while concurrently facilitating the securitization of unrated securities and loans. The RiskCalc models have been extensively tested and calibrated and provide our rating analysts with a consistent metric of credit risk. We expect our use of the models to grow as they continue to be enhanced and as new models are introduced."
The new RiskCalc v3.1 models cover industrial firms in the U.S., Canada, U.K., and Japan. Updates for the other 14 RiskCalc models for European and Asian countries, as well as a model with coverage for U.S. banks, will roll out in coming months. The current models are widely used, and together represent some 97 percent of the developed world’s GDP. In addition to the 200 financial institution users worldwide, RiskCalc has been used as the basis for over 200 collateralized debt obligations worldwide. Moody’s KMV anticipates that the new RiskCalc will become a common language among those concerned with private company risk assessment and will be warmly received as the secondary market for such loans is developing, new levels of regulation are introduced and bank shareholders are demanding better performance.
“The credit cycle adjustments available in RC v3.1, based on over fifteen years of research, are the only forward-looking measures specifically designed to predict future credit risk,” said Roger M. Stein, Managing Director at Moody’s KMV. “They allow a user to update credit assessments on a monthly basis, yielding a far more responsive and timely measure of current credit risk, which can have significant financial implications.”
About Moody’s KMV
Moody’s KMV, a wholly owned subsidiary of Moody's Corporation, is the world’s leading provider of quantitative credit risk analysis tools to lenders, investors, and corporations. Moody’s KMV's tools provide current default probabilities, recovery estimates, valuations and correlations, and are widely used to assess portfolio risk/return. Serving over 2,000 clients in 80 countries, including most of the world's 100 largest financial institutions, Moody’s KMV maintains the largest and cleanest database of corporate defaults in the world. In addition to its San Francisco headquarters, Moody’s KMV has offices around the world to serve its global customer base.
About Moody's Corporation
Moody's Corporation (NYSE: MCO) is the parent company of Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, and Moody's KMV, the leading provider of market-based quantitative services for banks and investors in credit-sensitive assets serving the world's largest financial institutions. The corporation, which reported revenue of $1.2 billion in 2003, employs approximately 2,300 people worldwide and maintains offices in 18 countries. Further information is available at www.moodys.com.
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