Credit risk

Four things to consider when analyzing the credit risk impacts of market volatility

Proactive monitoring of quantitative and qualitative risk factors can help understand and assess the growing credit risks associated with the new realities of market volatility. The Corporate Credit Assessment Scorecard provides an effective framework for navigating the current climate, particularly for portfolios with low default rates which, by definition, lack the detailed internal default data needed to build statistical models that can be calibrated. and robustly validated.

But how will the solvency of the unrated universe be impacted by such volatility?

There are four main areas where our corporate scorecard can reflect the ripple effects of market volatility on credit risk.

  1. Country Risk Scores (CRS) – Our CRS are long-term structural risk indicators, addressing economic risk, institutional effectiveness and governance risk, financial system risk, and payment culture or rule of law risk in countries in which a company operates.
  2. Industry Risk Scores (IRS) – The IRS provides credit risk analysts with a starting point to assess credit risks in a specific sector/sub-sector. IRS are derived from industry cyclicality and competitive risk and growth which is a theoretical median level of risk inherent in a given industry, given its barriers to entry, level and trend of profit margins of industry, growth potential risk, secular change risk and substitute. product.
  3. Commercial and financial risk –The degree of disruption caused by lower demand and cash generation can be captured by quantitative factors through our Business Dashboard. Credit risk analysts can use forecasts to manage the uncertainty and shock caused by market volatility on revenue, EBITDA, FFO and other financial ratios, based on a forecasting model strong financials.
  4. Liquidity modifier – Credit analysts can update their calculation of longer-term cash resources and uses, incorporating the latest cash figures and updating their revenue and capital expenditure (capex) assumptions, among other things. using our Corporate Scorecard.

In response to the COVID-19 pandemic, central banks and governments have deployed fiscal and monetary policy packages of unprecedented scale to help workers and businesses bridge the gap to recovery. Today, the expectation of specific and extraordinary support provided by governments to certain government-related entities (GREs) is addressed with the use of the GRE overlay provided with the Corporate Scorecard.

With ever-changing credit markets, how do you effectively manage risk?

Request a demo to learn how credit scorecards can help you identify and manage potential default risks from private, publicly traded, rated and unrated businesses across a multitude of industries.