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Understanding RATINGS

Default Studies

Default Statistics

Default Statistics is the percentage of default to the total entity ratings calculated in each rating scale for a particular time period. Likewise, the Default Study happens when:

  • The issuer/obligor is not able to honor the obligation by paying principal and interest on time.
  • The issuer/obligor goes bankrupt.
  • The issuer/obligor has encountered another debt restructuring that reduces the creditworthiness.
  • The creditor announces an event of default.

Transition Rate

Transition rate is the probability of an issuer/obligor’s rating moving to another rating category which could be upward or downward in the scale for a particular time period. For example, an issuer/obligor with the rating scale of AAA has been downgraded to AA.

Cumulative Default Rate

Cumulative Default Rate is the gauge of movement of a rating category into “Default Rating Category” in a time range.