Moody's proposes Loss Given Default framework for EMEA issuers

New York, November 22, 2006 -- Moody's Investors Service today announced the publication of a new report explaining its proposed framework for the introduction of Probability of Default Ratings and Loss Given Default Assessments for speculative-grade corporate issuers in Europe, the Middle East and Africa (EMEA) and the related implementation plans. The rating agency is inviting comments from market participants on these proposals.

PROBABILITY OF DEFAULT RATINGS AND LOSS GIVEN DEFAULT ASSESSMENTS

During the first quarter of 2007 Moody's plans to enhance its current rating system in the EMEA region with the introduction of both Probability of Default Ratings and Loss Given Default Assessments on non-financial speculative-grade corporate issuers, following their successful rollout in the US and Canada. Moody's current long-term credit ratings are opinions about expected credit loss that incorporate both the likelihood of default and the expected loss in the event of default. The new ratings therefore disaggregate the two key assessments already inherent in current long-term ratings.

Probability of Default Ratings (or PDRs) will be assigned only to issuers, 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 (LGD) Assessments will be assigned to the corporate family and its individual rated debt issues -- loans, bonds and preferred stock. Moody's opinion of expected loss will be expressed as a percent of principal and accrued interest at the resolution of the default, with ratings ranging from LGD1 (loss anticipated to be 0% - 9%) to LGD6 (loss anticipated to be 90% - 100%).

FRAMEWORK AND IMPLEMENTATION PROPOSALS FOR EMEA

"The recommendations detailed in our 'Request for Comment' build upon Moody's core methodology, which has already been adapted for use in North America and is now being adapted for the EMEA markets," said David Staples, a Moody's Team Managing Director and an author of the report.

"The modelling procedure that is central to the assessment process applies well to issuers in EMEA as well as to those in North America.

While historical loss data is relatively sparse for EMEA and a variety of bankruptcy regimes need to be accommodated, we believe there is sufficient flexibility in the approach to capture and reflect these uncertainties and differences."

The methodology used to derive the expected LGD rates underlying the LGD assessments on individual instruments considers the probability distribution of different potential outcomes for the company's firm-wide recovery rates at default, its expected liability structure at default, and the expected treatment of debt securities and other obligations from a priority of claims perspective in bankruptcy. As suggested by previous Moody's research that showed that realised credit losses on loans have tended to be lower than loss rates on similarly rated bonds, application of a rigorous estimation model for LGD rates will lead to higher ratings on a large proportion of corporate loans. Bond rating changes are expected to be more balanced and less numerous.

There are approximately 200 speculative-grade corporate issuers which would be affected by the proposed methodology, of which approximately 50 have publicly rated bank loans. "Implementation of the LGD methodology will not impact Moody's existing approach to assigning Corporate Family Ratings. However, ratings on some specific issues may be affected, particularly bank loan ratings, to the extent that implementation of this methodology alters the LGD assumptions embedded in current ratings," Eric de Bodard, Chief Credit Officer.

Entitled "Request for Comment on Probability of Default Ratings and Loss Given Default Assessments for Corporate Obligors in Europe, Middle East and Africa: Recommended Framework", the Rating Methodology is available at www.moodys.com. The rating agency will be accepting comments from market participants until 18 December 2006. Comments should be addressed to the credit policy committee at cpc@moodys.com.

Moody's will hold a teleconference on this Rating Methodology on Wednesday 29 November at 4pm London time.

-Ends-

London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Michel A. Madelain
Managing Director
Unknown Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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© Press Release 2006