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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
Moody's KMV Releases Moody's RiskCalc™ Model for Measuring Default Risk of Dutch Private Firms, Adding Thousands More Companies to Credit Opinion Coverage
Risk Management Tool Now Covers 12 Countries, Including 7 in Europe
SAN FRANCISCO, October 7, 2002 - Moody's KMV (formerly KMV and Moody's Risk Management Services) announced today the release of Moody's RiskCalc™ for private Dutch companies, a Web-based model for estimating the probability of default (PD) on obligations of non-financial Dutch private companies. RiskCalc Netherlands joins the Moody's KMV RiskCalc suite of quantitative credit risk models for private firms and is an important step in its plan to develop a globally consistent network of locally validated risk assessment models. RiskCalc now covers private firms in twelve countries worldwide, including seven in Europe. It provides the global lending community and corporations with an unrivalled risk management tool that can be used to benchmark risk for a single company or manage the credit risk of an entire portfolio. RiskCalc PDs help determine whether a prospective borrower meets credit underwriting standards, whether the current spread on loans is sufficient to add shareholder value, whether loans meet credit risk benchmarks for the development of a secondary market for private firm commercial debt and securitizations backed by commercial debt, and whether capital attribution levels are appropriate.
The Dutch model, developed in co-operation with Oliver, Wyman & Company, is calibrated to the attributes of Dutch private companies, using data from an historical database of over 79,000 financial statements from over 19,000 Dutch private firms. It uses six financial ratios to reflect a firm's profitability, gearing, debt coverage, liquidity and asset quality, with an adjustment for industry sector and firm size. Moody's KMV chose the ratios for each category on the basis of their stand-alone ability to predict default and for their behavior within a multivariate model. They were then transformed and combined to produce one and five-year PDs that are also mapped to Moody's Investors Service's historical bond default rates.
In addition to the Netherlands, Moody's KMV has released RiskCalc models calibrated for private firms in the U.S., Canada, Mexico, Australia, Japan, the UK, Germany, France, Spain, Belgium, Portugal and will soon release models covering other major European economies. "We expect that, as the RiskCalc network of models expands, it will become a global standard for default probability credit ratings," stated David Wright, Director Moody's KMV. The standard will enable companies to establish consistent credit assessments that are important for the development of a secondary market for private firm commercial debt, as well as securitizations backed by commercial debt such as Collateralised Debt Obligations. As a result, the ability of banks to trade assets that are now largely illiquid will be greatly increased.
Moody's KMV said the release of the product is especially timely, given expected changes in banking regulation. The Basel Committee on Banking Supervision has issued consultation documents (known as BIS-II) proposing changes to the 1988 Capital Accord. If enacted, the regulations will call for banks to establish greater differentiation on capital requirements according to the implicit risk of an exposure, increasing reliance on banks' internal rating systems. One of the key aspects of BIS-II is the measurement of credit risk, with banks being encouraged to differentiate borrowers and categorize their book exposures based on risk. This approach (for corporate, bank and sovereign exposures in particular) involves estimation of the probability of default, for which RiskCalc is well suited.
Moody's RiskCalc for Dutch private companies is available via the Moody's KMV Web site www.moodyskmv.com, allowing clients to determine PDs for large middle-market portfolios quickly and efficiently.
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.
About Oliver, Wyman & Company
Oliver, Wyman & Company is the leading strategy consulting firm dedicated exclusively to the financial services industry. Founded in 1984, the firm employs close to 350 professionals, working out of offices in New York, London, Frankfurt, Madrid, Milan, Paris, Toronto and Singapore. For further information on OWC, visit its public Web site at www.oliverwyman.com.
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