Moody’s Releases First Default Loss Model

Moody’s Risk Management Services announced a new product, LossCalcTM, that predicts recovery rates for debt instruments that have defaulted. Moody’s LossCalc is an extension and enhancement of Loss Given Default (LGD) research that Moody’s has conducted and published for over ten years, aiding market participants in predicting the extent of losses that might be suffered by investors with defaulted debt obligations. Loss given default is an estimate of the loss a creditor will incur if the borrower of a loan or the issuer of a bond defaults. It is an important component in determining the prices of financial instruments such as bonds, loans, and derivatives and it is essential for credit risk management. Unlike traditional approaches, LossCalc incorporates macroeconomic information, industry, and firm-specific data. LossCalc produces estimates at both the immediate and the one-year time horizons. This allows LossCalc to be usedover a range of debt maturities.


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