London - As announced in November 2006 with the publication of a "Request for Comment", Moody's Investors Service plans to enhance its current rating system with the introduction of Loss Given Default Assessments and Probability of Default ratings on non-financial speculative-grade corporate issuers in Europe, Middle East and Africa (EMEA) with a framework that reflects insolvency practices and experiences in the various jurisdictions in that region. Following discussions with market participants and the end of the comment period, Moody's has decided to implement the proposed methodology for the approximately 200 speculative-grade corporate families in EMEA during the latter half of March 2007. Moody's will also begin applying the methodology in the assignment of new ratings beginning March 19th, 2007.
Between now and the March 19th implementation date, Moody's will strive to provide guidance in press releases on any potential impact of the future application of the LGD methodology on all new debt rating assignments and rating actions relating to existing debt ratings.
"Market participants have expressed support for the proposed framework as outlined in Moody's Request for Comment," says David Staples, a Managing Director in Moody's European Corporate Finance Group. "Discussions with market participants have centred on requests for guidance on how individual financial and non-financial debt claims would be modelled under different capital and corporate legal structure scenarios specific to individual circumstances." A Users Guide with more detailed guidelines for modelling loss given default will be published in March 2007.
Moody's will roll out the new assessments and ratings in March on an industry-by-industry basis for existing corporate speculative-grade issuers in EMEA accompanied by press releases announcing aggregate rating changes for a particular industry.
Moody's current long-term credit ratings are opinions about expected credit loss, which incorporate both the likelihood of default and the expected loss in the event of default. The new assessments/ratings therefore disaggregate and assess the two key components already inherent in our current long-term ratings.
Probability of Default Ratings (or PDRs) will be assigned only to issuers and not to specific debt instruments, and will use the standard Moody's alpha-numeric scale. They will express Moody's opinion of the likelihood that any entity within a corporate family will default on any of its debt obligations.
Loss Given Default Assessments (or LGDAs) will be assigned to the individual rated debt issues -- that is, loans, bonds, and preferred stock. Moody's opinion of loss-given-default will be expressed as a percentage of principal and accrued interest at the resolution of the default, with assessments ranging from LGD1 (loss anticipated to be 0% - 9%) to LGD6 (loss anticipated to be 90% - 100%).
Moody's Request for Comment entitled "Probability of Default Ratings and Loss Given Default Assessments for Corporate Obligors in Europe, Middle East, and Africa: Recommended Framework" was published in November 2006 and is available on Moodys.com.
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London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Eric de Bodard
Managing Director
Corporate Finance Group
Moody's France S.A.
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SUBSCRIBERS: 44 20 7772 5454
© Press Release 2007
