Moody’s Releases RiskCalc Model for Measuring Default Risk of UK Private Firms

Moody’s RiskCalc× for private UK companies is a web-based model for estimating the probability of default (PD) on obligations of non-financial UK private companies. Moody’s RiskCalc UK uses eight financial ratios to reflect a firm’s profitability, gearing, debt coverage, liquidity, activity levels and sales growth. Adjustments were made for industry sector and firm size. MRMS chose the ratios for each category on the basis of their stand-alone ability to predict default and for their behaviour within a multivariate model. They were then transformed to produce one and five-year PD’s that are also mapped to Moody’s Investors Service’s historical bond default rates. The model, developed in co-operation with Oliver, Wyman & Company, has been calibrated to the unique attributes of UK private companies, using financial statement data on a historical database of UK private firms, of which over 4,500 had defaulted. This model can be used to benchmark risk for a single company or manage the credit risk of an entire portfolio.


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