45
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

Altman Rijken (2004) (Ratings Stability)

Embed Size (px)

DESCRIPTION

Ratings Paper

Citation preview

Page 1: Altman Rijken (2004) (Ratings Stability)

+RZ�UDWLQJ�DJHQFLHV�DFKLHYH�UDWLQJ�VWDELOLW\

(GZDUG�,��$OWPDQ� DQG�+HUEHUW�$��5LMNHQ�$SULO�����

-(/�FODVVLILFDWLRQ��*����*��.H\ZRUGV��5DWLQJ�DJHQFLHV��WKURXJK�WKH�F\FOH�UDWLQJ�PHWKRGRORJ\��PLJUDWLRQ�SROLF\��FUHGLW�VFRULQJ�PRGHOV��GHIDXOW�SUHGLFWLRQ� 1<8�6DORPRQ�&HQWHU��/HRQDUG�1��6WHUQ�6FKRRO�RI�%XVLQHVV��1HZ�<RUN�8QLYHUVLW\����:HVW��WK 6WUHHW��1HZ�<RUN��1<��������86$��HPDLO��HDOWPDQ#VWHUQ�Q\X�HGX�� 9ULMH�8QLYHUVLWHLW�$PVWHUGDP��'H�%RHOHODDQ������������+9�$PVWHUGDP��7KH�1HWKHUODQGV�HPDLO��KULMNHQ#IHZHE�YX�QO7KH�DXWKRUV�ZLVK�WR�WKDQN�5LFKDUG�&DQWRU��$GULDQ�%XFNOH\��DQ�DQRQ\PRXV�UHIHUHH��VHPLQDUSDUWLFLSDQWV�DW�WKH�8QLYHUVLW\�RI�8OP�DQG�DW�WKH�9ULMH�8QLYHUVLWHLW�$PVWHUGDP�DQG�SDUWLFLSDQWVDW�WKH�)0$�FRQIHUHQFH�LQ�'HQYHU�IRU�WKHLU�FRPPHQWV�DQG�VXJJHVWLRQV�RQ�D�SUHYLRXV�YHUVLRQRI�WKH�SDSHU�

Page 2: Altman Rijken (2004) (Ratings Stability)

$EVWUDFW6XUYH\V�RQ�WKH�XVH�RI�DJHQF\�FUHGLW�UDWLQJV�UHYHDO�WKDW�VRPH�LQYHVWRUV�EHOLHYH�WKDW�UDWLQJDJHQFLHV�DUH�UHODWLYHO\�VORZ�LQ�DGMXVWLQJ�WKHLU�UDWLQJV��$�ZHOO�DFFHSWHG�H[SODQDWLRQ�IRU�WKLVSHUFHSWLRQ�RQ�WKH�WLPHOLQHVV�RI�UDWLQJV�LV�WKH�³WKURXJK�WKH�F\FOH´�PHWKRGRORJ\�WKDW�DJHQFLHVXVH��$FFRUGLQJ�WR�0RRG\V��WKURXJK�WKH�F\FOH�UDWLQJV�DUH�VWDEOH�EHFDXVH�WKH\�DUH�LQWHQGHG�WRPHDVXUH�WKH�ULVN�RI�GHIDXOW�ULVN�RYHU�ORQJ�LQYHVWPHQW�KRUL]RQV��DQG�EHFDXVH�WKH\�DUH�FKDQJHGRQO\�ZKHQ�DJHQFLHV�DUH�FRQILGHQW�WKDW�REVHUYHG�FKDQJHV�LQ�D�FRPSDQ\V�ULVN�SURILOH�DUH�OLNHO\WR�EH�SHUPDQHQW��7R�YHULI\�WKLV�H[SODQDWLRQ��ZH�TXDQWLI\�WKH�LPSDFW�RI�WKH�ORQJ�WHUP�GHIDXOWKRUL]RQ�DQG�WKH�SUXGHQW�PLJUDWLRQ�SROLF\�RQ�UDWLQJ�VWDELOLW\�IURP�WKH�SHUVSHFWLYH�RI�DQLQYHVWRU���ZLWK�QR�GHVLUH�IRU�UDWLQJ�VWDELOLW\��7KLV�LV�GRQH�E\�EHQFKPDUNLQJ�DJHQF\�UDWLQJVZLWK�D�ILQDQFLDO�UDWLR�EDVHG��FUHGLW�VFRULQJ��DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO�DQG��FUHGLWVFRULQJ��GHIDXOW�SUHGLFWLRQ�PRGHOV�RI�YDULRXV�WLPH�KRUL]RQV��:H�DOVR�H[DPLQH�UDWLQJPLJUDWLRQ�SUDFWLFHV��)LQDO�UHVXOW�LV�D�EHWWHU�TXDQWLWDWLYH�XQGHUVWDQGLQJ�RI�WKH�WKURXJK�WKH�F\FOHPHWKRGRORJ\�%\�YDU\LQJ�WKH�WLPH�KRUL]RQ�LQ�WKH�HVWLPDWLRQ�RI�GHIDXOW�SUHGLFWLRQ�PRGHOV��ZH�VHDUFK�IRU�DEHVW�PDWFK�ZLWK�WKH�DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO��&RQVLVWHQW�ZLWK�WKH�DJHQFLHV�VWDWHGREMHFWLYHV��ZH�FRQFOXGH�WKDW�DJHQF\�UDWLQJV�DUH�IRFXVHG�RQ�WKH�ORQJ�WHUP��,Q�FRQWUDVW�WR�RQH�\HDU�GHIDXOW�SUHGLFWLRQ�PRGHOV��DJHQF\�UDWLQJV�SODFH�OHVV�ZHLJKW�RQ�VKRUW�WHUP�LQGLFDWRUV�RIFUHGLW�TXDOLW\�:H�DOVR�GHPRQVWUDWH�WKDW�WKH�IRFXV�RI�DJHQFLHV�RQ�ORQJ�LQYHVWPHQW�KRUL]RQV�H[SODLQV�RQO\SDUW�RI�WKH�UHODWLYH�VWDELOLW\�RI�DJHQF\�UDWLQJV��7KH�RWKHU�DVSHFW�RI�WKURXJK�WKH�F\FOH�UDWLQJPHWKRGRORJ\�±�DJHQF\�UDWLQJ�PLJUDWLRQ�SROLF\�±�LV�DQ�HYHQ�PRUH�LPSRUWDQW�IDFWRU�XQGHUO\LQJWKH�VWDELOLW\�RI�DJHQF\�UDWLQJV��:H�ILQG�WKDW�UDWLQJ�PLJUDWLRQV�DUH�WULJJHUHG�ZKHQ�WKHGLIIHUHQFH�EHWZHHQ�WKH�DFWXDO�DJHQF\�UDWLQJ�DQG�WKH�PRGHO�SUHGLFWHG�UDWLQJ�H[FHHGV�D�FHUWDLQWKUHVKROG�OHYHO��:KHQ�UDWLQJ�PLJUDWLRQV�DUH�WULJJHUHG��DJHQFLHV�DGMXVW�WKHLU�UDWLQJV�RQO\SDUWLDOO\��FRQVLVWHQW�ZLWK�WKH�NQRZQ�VHULDO�GHSHQGHQF\�RI�DJHQF\�UDWLQJ�PLJUDWLRQV�

Page 3: Altman Rijken (2004) (Ratings Stability)

,�,QWURGXFWLRQ7KH�FUHGLW�UDWLQJV�RI�0RRG\V��6WDQGDUG��3RRUV��DQG�)LWFK�SOD\�D�NH\�UROH�LQ�WKH�SULFLQJ�RIFUHGLW�ULVN�DQG�LQ�WKH�GHOLQHDWLRQ�RI�LQYHVWPHQW�VWUDWHJLHV��7KH�IXWXUH�UROH�RI�WKHVH�DJHQF\UDWLQJV�ZLOO�EH�IXUWKHU�H[SDQGHG�ZLWK�WKH�LPSOHPHQWDWLRQ�RI�WKH�%DVOH�,,�DFFRUG��ZKLFKHVWDEOLVKHV�UDWLQJ�FULWHULD�IRU�WKH�FDSLWDO�DOORFDWLRQV�RI�EDQNV�LQ�������*LYHQ�WKH�UDWKHU�VXGGHQPHOWGRZQ�LQ�$VLDQ�FRXQWULHV�DQG�FRUSRUDWLRQV�LQ������DQG�WKH�ODUJH�LQFUHDVH�LQ�GHIDXOWV�LQ�WKH�����±������SHULRG��WKH�WLPHOLQHVV�RI�DJHQF\�UDWLQJV�KDV�FRPH�XQGHU�FORVHU�VFUXWLQ\�DQGFULWLFLVP�$�UHFHQW�VXUYH\�FRQGXFWHG�E\�WKH�$VVRFLDWLRQ�IRU�)LQDQFLDO�3URIHVVLRQDOV��������UHYHDOV�WKDWPRVW�SDUWLFLSDQWV�EHOLHYH�WKDW�DJHQF\�UDWLQJV�DUH�VORZ�LQ�UHVSRQGLQJ�WR�FKDQJHV�LQ�FRUSRUDWHFUHGLW�TXDOLW\�� 6XUYH\V�E\�(OOLV��������DQG�%DNHU�DQG�0DQVL��������UHSRUW�WKH�VDPH�ILQGLQJ�7KH�VORZQHVV�LQ�UDWLQJ�DGMXVWPHQWV�LV�ZHOO�UHFRJQL]HG�E\�LQYHVWRUV��,QGHHG��LW�VHHPV�WKDW�WKH\DQWLFLSDWH�WKH�ZHOO�GRFXPHQWHG�VHULDO�FRUUHODWLRQ�LQ�GRZQJUDGHV�� ,Q�D�VXUYH\�FRQGXFWHG�E\(OOLV�������������RI�LQYHVWRUV�EHOLHYH�WKDW�UDWLQJV�VKRXOG�UHIOHFW�UHFHQW�FKDQJHV�LQ�FUHGLWTXDOLW\��HYHQ�LI�WKH\�DUH�OLNHO\�WR�EH�UHYHUVHG�ZLWKLQ�D�\HDU��$W�WKH�VDPH�WLPH��LQYHVWRUV�ZDQWWR�NHHS�WKHLU�SRUWIROLR�UHEDODQFLQJ�DV�ORZ�DV�SRVVLEOH�DQG�GHVLUH�VRPH�OHYHO�RI�UDWLQJ�VWDELOLW\�7KH\�GR�QRW�ZDQW�UDWLQJV�WR�EH�FKDQJHG�WR�UHIOHFW�VPDOO�FKDQJHV�LQ�ILQDQFLDO�FRQGLWLRQ��2Q�WKHLVVXH�RI�WZR�FRQIOLFWLQJ�JRDOV�±�UDWLQJ�WLPHOLQHVV�DQG�UDWLQJ�VWDELOLW\�±�LQYHVWRUV�DSSHDU�WRKDYH�DPELJXRXV�RSLQLRQV��,Q�WKHLU�PHHWLQJV�ZLWK�WKH�LQVWLWXWLRQDO�EX\VLGH�LQ�������0RRG\VUHSHDWHGO\�KHDUG�WKDW�LQYHVWRUV�YDOXH�WKH�FXUUHQW�UDWLQJ�VWDELOLW\�OHYHO�DQG�GR�QRW�ZDQW�UDWLQJVVLPSO\�WR�IROORZ�PDUNHW�SULFHV��VHH�)RQV�HW�DO���������7KH�REMHFWLYH�RI�DJHQFLHV�LV�WR�SURYLGH�DQ�DFFXUDWH�UHODWLYH��L�H���RUGLQDO��UDQNLQJ�RI�FUHGLW�ULVNDW�HDFK�SRLQW�LQ�WLPH��ZLWKRXW�UHIHUHQFH�WR�DQ�H[SOLFLW�WLPH�KRUL]RQ��VHH�&DQWRU�DQG�0DQQ��������,Q�RUGHU�WR�DFKLHYH�UDWLQJ�VWDELOLW\��DJHQFLHV�WDNH�D�ORQJ�WHUP�SHUVSHFWLYH��ZKLFKORZHUV�WKH�VHQVLWLYLW\�RI�DJHQF\�UDWLQJV�WR�VKRUW�WHUP�IOXFWXDWLRQV�LQ�FUHGLW�TXDOLW\��,Q�WKHLUFRUSRUDWH�UDWLQJV�FULWHULD�GRFXPHQW��6WDQGDUG��3RRUV��������WDNHV�WKH�SRVLWLRQ�WKDW�³WKHYDOXH�RI�LWV�SURGXFWV�LV�JUHDWHVW�ZKHQ�LWV�UDWLQJV�IRFXV�RQ�WKH�ORQJ�WHUP�DQG�GR�QRW�IOXFWXDWHZLWK�QHDU�WHUP�SHUIRUPDQFH�´� $JHQFLHV�DLP�WR�UHVSRQG�RQO\�WR�WKH�SHUFHLYHG�SHUPDQHQW�ORQJ�WHUP��FRPSRQHQW�RI�FUHGLW�TXDOLW\�FKDQJHV��,Q�DGGLWLRQ��DJHQFLHV�IROORZ�D�SUXGHQWPLJUDWLRQ�SROLF\��2QO\�VLJQLILFDQW�FKDQJHV�LQ�FUHGLW�TXDOLW\�UHVXOW�LQ�UDWLQJ�PLJUDWLRQV�DQG��LIWULJJHUHG��UDWLQJV�DUH�SDUWLDOO\�DGMXVWHG�7KH�WKURXJK�WKH�F\FOH�UDWLQJ�PHWKRGRORJ\�RI�DJHQFLHV�LV�GHVLJQHG�WR�DFKLHYH�DQ�RSWLPDOEDODQFH�EHWZHHQ�UDWLQJ�WLPHOLQHVV�DQG�UDWLQJ�VWDELOLW\�� 7KH�PHWKRGRORJ\�KDV�WZR�NH\�DVSHFWV�ILUVW��D�ORQJ�WHUP�GHIDXOW�KRUL]RQ�DQG��VHFRQG��D�SUXGHQW�PLJUDWLRQ�SROLF\��7KHVH�WZRVWDQGSRLQWV�DUH�DLPHG�DW�DYRLGLQJ�H[FHVVLYH�UDWLQJ�UHYHUVDOV��ZKLOH�KROGLQJ�WKH�WLPHOLQHVV�RIDJHQF\�UDWLQJV�DW�DQ�DFFHSWDEOH�OHYHO�� ,W�LV�XQFOHDU�VR�IDU��ZKLFK�DVSHFW�RI�WKH�WKURXJK�WKH�F\FOH�DSSURDFK�PDNHV�WKH�SULPDU\�FRQWULEXWLRQ�WR�UDWLQJ�VWDELOLW\�6R�IDU�GHWDLOV�RQ�KRZ�WKH�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�LV�SXW�LQWR�SUDFWLFH�E\�DJHQFLHV�DQGTXDQWLWDWLYH�GHWDLOV�RQ�LWV�LPSDFW�RQ�UDWLQJ�VWDELOLW\�DUH�ODUJHO\�XQNQRZQ�WR�WKH�RXWVLGH�ZRUOG

Page 4: Altman Rijken (2004) (Ratings Stability)

���7KH�SULPH�REMHFWLYH�RI�WKLV�SDSHU�LV�WR�VKHG�VRPH�OLJKW�LQ�WKLV�EODFN�ER[��)LUVW�ZH�TXDQWLI\WKH�LPSDFW�RI�WKH�WZR�DVSHFWV�RI�WKH�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�WR�UDWLQJ�VWDELOLW\�IURP�DQLQYHVWRU¶V�SHUVSHFWLYH���ZLWK�QR�GHVLUH�IRU�UDWLQJ�VWDELOLW\��DQG�VHFRQG��ZH�SURYLGH�D�IXUWKHUXQGHUVWDQGLQJ�RI�WKH�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�E\�PRGHOLQJ�WKH�SUXGHQW�PLJUDWLRQSROLF\��,Q�RUGHU�WR�PHDVXUH�UDWLQJ�VWDELOLW\�ZH�IRUPXODWH�FUHGLW�VFRULQJ�PRGHOV��UHIOHFWLQJ�WKHLQYHVWRUV�SHUVSHFWLYH�RQ�FUHGLW�TXDOLW\��,Q�D�EHQFKPDUN�DQDO\VLV�ZH�FRPSDUH�WKH�DJHQF\UDWLQJ�G\QDPLFV�ZLWK�FUHGLW�PRGHO�VFRUH�G\QDPLFV��7KH�FRQFOXVLRQV�RI�WKLV�VWXG\�DUH�XVHIXO�WRIRUPXODWH�SROLFLHV�WR�DFKLHYH�DQ�RSWLPDO�EDODQFH�EHWZHHQ�UDWLQJ�VWDELOLW\�DQG�UDWLQJWLPHOLQHVV��WR�SURYLGH�JXLGHOLQHV�KRZ�WR�XVH�DJHQF\�UDWLQJV�LQ�WKH�%DVHO�,,�IUDPHZRUN�DQG�WRGHILQH�FRQGLWLRQV�ZKHQ�LW�LV�DFFHSWDEOH�WR�XVH�DJHQF\�UDWLQJ�PLJUDWLRQ�PDWULFHV�DV�LQSXW�WRUDWLQJ�EDVHG�FUHGLW�ULVN�PRGHOV�2I�FUXFLDO�LPSRUWDQFH�WR�WKLV�EHQFKPDUN�VWXG\�LV�WKH�IRUPXODWLRQ�RI�D�FUHGLEOH�DQG�DFFXUDWHSUR[\�IRU�WKH�LQYHVWRUV�SHUVSHFWLYH�RQ�FUHGLW�TXDOLW\���ZLWK�QR�GHVLUH�IRU�UDWLQJ�VWDELOLW\��)RUWKLV�SXUSRVH�FUHGLW�VFRULQJ�GHIDXOW�SUHGLFWLRQ�PRGHOV�RI�YDULRXV�WLPH�KRUL]RQV�DUH�HVWLPDWHG�:H�DVVXPH�LQYHVWRUV�WR�KDYH�D��SRLQW�LQ�WLPH��SHUVSHFWLYH�RQ�FUHGLW�TXDOLW\��FRPSDUDEOH�WRWKH�ZHOO�GRFXPHQWHG�SHUVSHFWLYH�RI�EDQNV��$V�RSSRVHG�WR�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�EDQNV�VWDWH�WKDW�WKH\�EDVH�WKHLU�LQWHUQDO�UDWLQJV�RQ�WKH�ERUURZHUV�FXUUHQW�FRQGLWLRQ��RU�FXUUHQWSRVLWLRQ�LQ�WKH�FUHGLW�TXDOLW\�F\FOH��VHH�WKH�%DVHO�&RPPLWWHH�RQ�%DQNLQJ�6XSHUYLVLRQ�UHSRUW�������DQG�7UHDF\�DQG�&DUH\���������7KHLU�PHDVXUHV�RI�WKH�³SRLQW�LQ�WLPH´�FUHGLW�TXDOLW\UHIOHFW�WKH�FXUUHQW��SRVVLEO\�WUDQVLHQW��PDUNHW�SHUFHSWLRQ�RQ�FUHGLW�TXDOLW\��$V�D�FRQVHTXHQFH�EDQNV�H[DPLQH�ERWK�WKH�SHUPDQHQW�DQG�WUDQVLWRU\�FRPSRQHQWV�RI�FUHGLW�TXDOLW\�FKDQJHV��7KHH[WHQW�WR�ZKLFK�SRLQW�LQ�WLPH�FUHGLW�TXDOLW\�PHDVXUHV�LQFOXGH�WHPSRUDU\�IOXFWXDWLRQV�LQ�FUHGLWTXDOLW\�GHSHQGV�RQ�WKH�GHIDXOW�KRUL]RQ��$�ODUJH�QXPEHU�RI�EDQNV�DVVHVV�WKH�FUHGLW�TXDOLW\�ZLWKD�RQH�\HDU�KRUL]RQ��EXW�QHDUO\�DV�PDQ\�EDQNV�DSSO\�KRUL]RQV�RI���WR���\HDUV��VHH�%DVHO&RPPLWWHH�RQ�%DQNLQJ�6XSHUYLVLRQ���������,Q�FRQWUDVW�WR�UDWLQJ�DJHQFLHV��EDQNV�KDYH�QRVWDWHG�REMHFWLYH�IRU�UDWLQJ�VWDELOLW\�RU��PRUH�VSHFLILFDOO\��IRU�DYRLGLQJ�UDWLQJ�UHYHUVDOV�WKDWFRXOG�EH�FDXVHG�E\�RYHUUHDFWLRQV�WR�WHPSRUDU\�VKRFNV��&RPSDUHG�WR�SRLQW�LQ�WLPH�UDWLQJV�DJHQF\�UDWLQJV�DUH�DLPHG�DW�LJQRULQJ�WHPSRUDU\�VKRFNV��7KH\�DUH�WKHUHIRUH�OHVV�OLNHO\�WR�EHUHYHUVHG�ZLWKLQ�LQ�D�VKRUW�SHULRG�RI�WLPH�)URP�WKH�EHQFKPDUN�VWXG\�ZH�FRQILUP�WKDW�DJHQF\�UDWLQJV�IRFXV�PRUH�RQ�SUHGLFWLQJ�UHODWLYHGHIDXOW�ULVN�RYHU�ORQJ�WLPH�DV�FRPSDUHG�WR�VKRUW�WLPH�KRUL]RQV��:H�REWDLQ�WKLV�HPSLULFDOILQGLQJ�E\�PRGHOLQJ�WKH�DJHQF\�UDWLQJ�VFDOH�ZLWK�DQ�RUGHUHG�ORJLW�UHJUHVVLRQ�PRGHO�DQG�E\PRGHOLQJ�WKH�GHIDXOW�SUREDELOLW\�ZLWK�D�ORJLW�UHJUHVVLRQ�PRGHO�IRU�YDULRXV�WLPH�KRUL]RQV��$FRPSDULVRQ�RI�PRGHO�SDUDPHWHUV�VKRZV�WKDW�WKH�DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO�LV�D�FORVHPDWFK�IRU�D�GHIDXOW�SUHGLFWLRQ�PRGHO�ZLWK�D�GHIDXOW�KRUL]RQ�RI�VL[�\HDUV�0LJUDWLRQ�SROLF\�LV�WKH�VHFRQG�DVSHFW�RI�WKURXJK�WKH�F\FOH�PHWKRGRORJ\��7KH�NH\�LVVXH�RIPLJUDWLRQ�SROLF\�LV�D�UHOLDEOH�GHWHFWLRQ�RI�WKH�SHUPDQHQW��ORQJ�WHUP��FRPSRQHQW�LQ�FUHGLW�TXDOLW\�FKDQJHV�DQG�DYRLGDQFH�RI�UDWLQJ�UHYHUVDOV��)HZ�GHWDLOV�DUH�NQRZQ�DERXW�WKHLGHQWLILFDWLRQ�RI�WKH�SHUPDQHQW�FRPSRQHQW�E\�DJHQFLHV��1R�VWUDLJKWIRUZDUG�PHWKRG�H[LVWV�WRIRUHFDVW�ZKHWKHU�WKH�QDWXUH�RI�D�FXUUHQW�FUHGLW�TXDOLW\�FKDQJH�LV�SHUPDQHQW�RU�WUDQVLWRU\��$FRPELQDWLRQ�RI�WKRURXJK�DQDO\VLV�DQG�H[SHUW�MXGJPHQW�LV�QHHGHG�WR�VHSDUDWH�WKH�SHUPDQHQW

Page 5: Altman Rijken (2004) (Ratings Stability)

DQG�WUDQVLWRU\�FRPSRQHQWV��%HFDXVH�RI�WKH�XQFHUWDLQW\�LQKHUHQW�LQ�IRUHFDVWLQJ�FUHGLW�TXDOLW\�DJHQFLHV�IROORZ�D�SUXGHQW�PLJUDWLRQ�SROLF\��:H�FKDUDFWHUL]H�WKH�SUXGHQW�PLJUDWLRQ�SROLF\DFFRUGLQJ�WR�WZR�SDUDPHWHUV�±�D�WKUHVKROG�SDUDPHWHU�DQG�DQ�DGMXVWPHQW�IUDFWLRQ�SDUDPHWHU�)LUVW��D�UDWLQJ�FKDQJH�LV�RQO\�FRQVLGHUHG�LI�WKH�DFWXDO�UDWLQJ�GLIIHUV�VLJQLILFDQWO\��E\�D�VSHFLILFWKUHVKROG��IURP�WKH�UDWLQJ�SUHGLFWHG�E\�D�ORQJ�WHUP�UDWLQJ�SUHGLFWLRQ�PRGHO��6HFRQG��LIWULJJHUHG��WKH�UDWLQJV�DUH�SDUWLDOO\�DGMXVWHG�WR�WKH�PRGHO�SUHGLFWHG�UDWLQJ��7KLV�SDUWLDODGMXVWPHQW�LV�WKH�VRXUFH�RI�VHULDO�FRUUHODWLRQ�LQ�DJHQF\�UDWLQJ�PLJUDWLRQV��DV�UHSRUWHG�E\$OWPDQ�DQG�.DR��������������,Q�D�VLPXODWLRQ�H[SHULPHQW�ZH�TXDQWLI\�WKH�WZR�PLJUDWLRQ�SROLF\�SDUDPHWHUV��$�UDWLQJPLJUDWLRQ�LV�WULJJHUHG�ZKHQ�WKH�UDWLQJ�SUHGLFWHG�E\�D��FUHGLW�VFRULQJ��DJHQF\�UDWLQJ�SUHGLFWLRQPRGHO�GLIIHUV�E\�DW�OHDVW�D�WKUHVKROG�OHYHO�RI������QRWFK�VWHSV�IURP�WKH�DFWXDO�DJHQF\�UDWLQJ��,IWULJJHUHG��UDWLQJV�DUH�RQO\�SDUWO\�DGMXVWHG��E\�DERXW������7KH�UDWLQJ�DGMXVWPHQWV�DUH�VSOLW�DQGH[HFXWHG�DW�GLIIHUHQW�WLPHV��$JHQFLHV�DSSHDU�WR�IROORZ�D�PRGHUDWH�³ZDLW�DQG�VHH´�SROLF\�,Q�WKH�VDPH�VSLULW��/|IIOHU��������H[DPLQHV�D�UDWLQJ�PLJUDWLRQ�SROLF\�PRGHO�EDVHG�RQ�WKH�LGHDWKDW�DJHQFLHV�WU\�WR�DYRLG�D�UDWLQJ�ERXQFH��,Q�WKLV�PRGHO��DJHQFLHV�VHW�GLIIHUHQW�WKUHVKROGV�IRUHDFK�UDWLQJ�PLJUDWLRQ�VWHS��7KH�OHYHO�RI�WKHVH�WKUHVKROGV�LV�GHWHUPLQHG�E\�D�WDUJHW�UDWLQJERXQFH�SUREDELOLW\��ZKLFK�LV�VHW�E\�WKH�DJHQFLHV�DQG�LGHDOO\�NHSW�DV�ORZ�DV�SRVVLEOH��$OWKRXJKWKH�QRWLRQV�EHKLQG�WKH�PRGHOLQJ�RI�DJHQF\�UDWLQJ�G\QDPLFV�DUH�VLPLODU�WR�RXU�PRGHO��WKHWHFKQLFDO�FRQVWUXFWLRQ�RI�RXU�PRGHO�GLIIHUV��,QVWHDG�RI�PXOWLSOH�WKUHVKROGV��ZH�LQFOXGH�RQHWKUHVKROG�OHYHO�DW�WKH�XSVLGH�DQG�RQH�DW�WKH�GRZQVLGH��:H�IXUWKHU�DVVXPH�WKH�UDWLQJV�WR�EHDGMXVWHG�E\�D�IUDFWLRQ�WR�WKHLU�SUHGLFWHG�UDWLQJ� ,Q�DGGLWLRQ��ZH�DSSO\�D�GLIIHUHQW�VLPXODWLRQDSSURDFK�WR�WHVW�WKH�YDOLGLW\�RI�WKH�UDWLQJ�PLJUDWLRQ�SROLF\�PRGHO��,QVWHDG�RI�PRGHOLQJ�FUHGLW�TXDOLW\�G\QDPLFV��ZH�SUR[\�WKH�DFWXDO�FUHGLW�TXDOLW\�G\QDPLFV�XVLQJ�FUHGLW�PRGHO�VFRUHV�7KLV�SDSHU�SURFHHGV�DV�IROORZV��,Q�&KDSWHU����WKH�EHQFKPDUN�FUHGLW�VFRULQJ�PRGHOV�DUHGHVFULEHG��,Q�WKLV�FKDSWHU�WKH��FUHGLW�VFRULQJ��DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO�LV�FRPSDUHGZLWK��FUHGLW�VFRULQJ��GHIDXOW�SUHGLFWLRQ�PRGHOV�IRU�YDULRXV�WLPH�KRUL]RQV��([WHQVLYH�DWWHQWLRQLV�SDLG�WR�WKH�FUHGLELOLW\�RI�WKH�HVWLPDWHG�FUHGLW�VFRULQJ�PRGHOV�WR�VHUYH�DV�D�EHQFKPDUN�IRUDJHQF\�UDWLQJV� &KDSWHU���RXWOLQHV�WKH�EHQFKPDUN�VWXG\��&KDSWHU���EHQFKPDUNV�DJHQF\�UDWLQJG\QDPLFV�DQG�WLPHOLQHVV�RI�DJHQF\�UDWLQJ�PLJUDWLRQV��&KDSWHU���GHVFULEHV�WKH�VLPXODWLRQH[SHULPHQW�LQ�ZKLFK�WKH�PLJUDWLRQ�SROLF\�SDUDPHWHUV�DUH�TXDQWLILHG��&KDSWHUV���VXPPDUL]HVWKH�FRQVHTXHQFHV�RI�WKH�ORQJ�WHUP�GHIDXOW�KRUL]RQ�DQG�WKH�SUXGHQW�PLJUDWLRQ�SROLF\�RQDJHQF\�UDWLQJ�G\QDPLFV�DQG�RXWOLQHV�D�VHDUFK�IRU�WKH�³WUXH´�FUHGLW�ULVN�PLJUDWLRQ�PDWUL[�&KDSWHU���GUDZV�FRQFOXVLRQV�

Page 6: Altman Rijken (2004) (Ratings Stability)

,,�%HQFKPDUN�FUHGLW�VFRULQJ�PRGHOV����)RUPXODWLRQ�RI�FUHGLW�VFRULQJ�PRGHOV,Q�RXU�EHQFKPDUN�VWXG\��ZH�H[DPLQH�WKH�FRUSRUDWH�LVVXHU�FUHGLW�UDWLQJV�RI�6WDQGDUG�DQG3RRUV�� 7KHVH�UDWLQJV�UHIOHFW�³WKH�REOLJRUV�DELOLW\�DQG�ZLOOLQJQHVV�WR�PHHW�LWV�ILQDQFLDOFRPPLWPHQWV�RQ�D�WLPHO\�EDVLV´��VHH�6WDQGDUG�DQG�3RRUV���������$FFRUGLQJ�WR�WKLV�GHILQLWLRQ�WKH�FRUSRUDWH�LVVXHU�FUHGLW�UDWLQJV�RI�DJHQFLHV�DUH�PHDVXUHV�RI�GHIDXOW�SUREDELOLW\�:H�IRUPXODWH�WZR�EHQFKPDUN�FUHGLW�VFRULQJ�PRGHOV��D�GHIDXOW�SUHGLFWLRQ�PRGHO��'3�PRGHO�DQG�DQ�DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO��$5�PRGHO���%RWK�WKH�'3�PRGHO�DQG�$5�PRGHOHPSOR\�WKH�VDPH�PRGHO�YDULDEOHV��7KLV�DOORZV�DQ�XQDPELJXRXV�FRPSDULVRQ�RI�WKH�G\QDPLFVRI�$5�VFRUHV�DQG�'3�VFRUHV��7KH�HVWLPDWLRQ�RI�WKHVH�PRGHOV�GLIIHUV�LQ�WKH�XVH�RI�GDWD��GHIDXOWHYHQWV�YHUVXV�DJHQF\�UDWLQJV��DQG�VWDWLVWLFDO�PHWKRGRORJ\��$W�ILUVW��WKH�'3�PRGHO�LV�HVWLPDWHGIRU�D�VKRUW�KRUL]RQ�RI�RQH�\HDU��DQG�WKHUHIRUH�PRGHOV�RQO\�VKRUW�WHUP�GHIDXOW�SUREDELOLW\��� 7KH�'3�PRGHO�PRGHOV�RQH�\HDU�GHIDXOW�SUREDELOLW\�SL DV�IROORZV�

LLL ;'3 HED �� �����LL

L '3SS � ��ORJ� �����ZKHUH�;L LV�WKH�VHW�RI�PRGHO�YDULDEOHV�IRU�ILUP�\HDU�REVHUYDWLRQ�L��,Q�D�VWDQGDUG�ORJLWPRGHO�VHWWLQJ��WKH�HUURU�WHUPV�HL DUH�DVVXPHG�WR�EH�LGHQWLFDOO\�GLVWULEXWHG�DQGLQGHSHQGHQWO\�GLVWULEXWHG��9DU�HL�� �1���&RY�HL��HM��� ���LI�L�z M���,Q�UHDOLW\��WKHVH�HUURU�WHUPFRQGLWLRQV�DUH�YLRODWHG��7R�REWDLQ�WKH�FRUUHFW�VWDWLVWLFV��+XEHU�:KLWH�VWDQGDUG�HUURUV�DUHXVHG�WR�UHOD[�WKH�DVVXPSWLRQ�RI�KRPRVNHGDVWLFLW\��$�JHQHUDOL]DWLRQ�RI�WKHVH�+XEHU�:KLWHVWDQGDUG�HUURUV��VHH�5RJHUV��������UHOD[HV�WKH�DVVXPSWLRQ�RI�LQGHSHQGHQF\�DPRQJ�DOOREVHUYDWLRQV�DV�ZHOO��,QVWHDG��RQO\�LQGHSHQGHQF\�DPRQJ�FOXVWHUV�RI�REVHUYDWLRQV�±REVHUYDWLRQV�RI�WKH�VDPH�ILUP�±�LV�DVVXPHG��7KH�SDUDPHWHUV�D��E DUH�HVWLPDWHG�E\�DPD[LPXP�OLNHOLKRRG�SURFHGXUH��7KH�'3�VFRUH�LV�GLUHFWO\�UHODWHG�WR�WKH�RQH�\HDU�GHIDXOWSUREDELOLW\�SL�

�� 7KH�DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO��$5�PRGHO��PRGHOV�WKH�GLVFUHWH�DJHQF\�UDWLQJ�VFDOH1�ZLWK�DQ�RUGHUHG�ORJLW�UHJUHVVLRQ�PRGHO�� ,Q�WKLV�PRGHO��WKH�$5�VFRUH��$5L��LV�DQXQREVHUYDEOH�YDULDEOH�LLL ;$5 HED �� �����

ZKHUH�;L LV�WKH�VHW�RI�PRGHO�YDULDEOHV�IRU�REVHUYDWLRQ�L��7KH�$5L VFRUH�LV�UHODWHG�WR�WKHDJHQF\�UDWLQJ�N�DV�IROORZV�

Page 7: Altman Rijken (2004) (Ratings Stability)

NLNL %$5%LIN\ d� �� �����ZKHUH�N�LV�RQH�RI�WKH�DJHQF\�UDWLQJ�FODVVHV�^��������««���`��� \L LV�WKH�DFWXDO�DJHQF\UDWLQJ��%N LV�WKH�XSSHU�ERXQGDU\�IRU�WKH�$5�VFRUH�LQ�UDWLQJ�FODVV�N��%� ���f��DQG�%�� �f�,Q�WKH�RUGHUHG�ORJLW�PRGHO��WKH�SUREDELOLW\�WKDW�\L HTXDOV�N�LV�VSHFLILHG�E\�

������ � LNLNL $5%)$5%)N\3 ��� � �����ZKHUH�)�LV�WKH�FXPXODWLYH�ORJLVWLF�IXQFWLRQ��7KH�SDUDPHWHUV�D��E��DQG�%N DUH�HVWLPDWHGZLWK�D�PD[LPXP�OLNHOLKRRG�SURFHGXUH��$V�IRU�WKH�'3�PRGHO��WKH�JHQHUDOL]HG�+XEHU�:KLWH�VWDQGDUG�HUURUV�DUH�FRPSXWHG��WKXV�UHOD[LQJ�WKH�KRPRVNHGDVWLFLW\�DVVXPSWLRQ�DQGWKH�DVVXPSWLRQ�RI�LQGHSHQGHQF\�DPRQJ�REVHUYDWLRQV�RI�WKH�VDPH�ILUP�7KH�$5�VFRUH�LV�LQ�IDFW�D�SRLQW�LQ�WLPH�PHDVXUH�RI�WKH�ORQJ�WHUP�GHIDXOW�ULVN�YLHZ�RIDJHQFLHV��,W�UHSUHVHQWV�SULPDULO\�RQH�DVSHFW�RI�WKH�WKURXJK�WKH�F\FOH�PHWKRGRORJ\��WKHORQJ�WHUP�GHIDXOW�KRUL]RQ�IRFXV�DIWHU�ILOWHULQJ�RXW�WKH�F\FOLFDO�FRPSRQHQW�LQ�FUHGLW�TXDOLW\�7KH�UDWLQJV�SUHGLFWHG�E\�WKH�$5�PRGHO�DUH�VOLJKWO\�RYHUVWDWHG�GXH�WR�WKH�PLJUDWLRQ�SROLF\�7KLV�RYHUVWDWHPHQW�LV�H[SODLQHG�DV�IROORZV��'XH�WR�D�SUXGHQW�PLJUDWLRQ�SROLF\��WKH�UDWLQJVPD\�EH�WHPSRUDULO\�XQGHUVWDWHG�RU�RYHUVWDWHG��,I�WKH�QXPEHU�RI�RYHUVWDWHG�UDWLQJV�DQG�WKHQXPEHU�RI�XQGHUVWDWHG�UDWLQJV�DUH�HTXDO�RYHU�WKH�VDPSOH�SHULRG�±�QHXWUDOL]LQJ�WKHYDULDWLRQ�LQ�RYHUVWDWHG�DQG�XQGHUVWDWHG�UDWLQJV�GXH�WR�WKH�SUXGHQW�PLJUDWLRQ�SROLF\�DQGEXVLQHVV�F\FOHV����WKH�PLJUDWLRQ�SROLF\�DQG�EXVLQHVV�F\FOHV�ZLOO�QRW�DIIHFW�WKH�SDUDPHWHUHVWLPDWHV��,Q�WKDW�FDVH�LW�ZLOO�RQO\�ZLGHQ�WKH�GLVWULEXWLRQ�RI�WKH�HUURU�WHUP�H��+RZHYHU��WKHQXPEHU�RI�GRZQJUDGHV�LV�����KLJKHU�WKDQ�WKH�QXPEHU�RI�XSJUDGHV�DQG�WKH�DJHQF\�UDWLQJPLJUDWLRQ�VKRZV�D�GRZQZDUG�WUHQG��7KH�QXPEHU�RI�RYHUVWDWHG�UDWLQJV�LV�H[SHFWHG�WR�EHVOLJKWO\�KLJKHU�DQG�DV�D�FRQVHTXHQFH�WKH�SUHGLFWHG�UDWLQJV�E\�WKH�$5�PRGHO�DUH�H[SHFWHGWR�EH�VOLJKWO\�KLJKHU�WKDQ�LQ�DEVHQFH�RI�D�SUXGHQW�PLJUDWLRQ�SROLF\��7KLV�VPDOO�VKLIW�LQSUHGLFWHG�UDWLQJV�GXH�WR�WKH�SUXGHQW�PLJUDWLRQ�SROLF\�GRHV�QRW�DIIHFW�WKH�EHQFKPDUNLQJ�RIUDWLQJ�G\QDPLFV��7KH�VWDWLF�UHJUHVVLRQ�PHWKRGRORJ\�LV�LQVHQVLWLYH�WR�WKH�G\QDPLFLQIOXHQFH�RI�WKH�PLJUDWLRQ�SROLF\�

����0RGHO�YDULDEOHV�LQ�WKH�FUHGLW�VFRULQJ�PRGHOV7KH�'3�VFRUH��(TXDWLRQ������DQG�WKH�$5�VFRUH��(TXDWLRQ������DUH�FDOFXODWHG�RQ�WKH�EDVLV�RIWKH�IROORZLQJ�VHW�RI�VL[�PRGHO�YDULDEOHV�

$JH6L]H%/0(7$(%,77$5(7$:.VFRUHFUHGLW ������ EEEEEED ������ �����ZKHUH�:.�LV�QHW�ZRUNLQJ�FDSLWDO��5(�LV�UHWDLQHG�HDUQLQJV��7$�LV�WKH�WRWDO�DVVHWV��(%,7�LVHDUQLQJV�EHIRUH�LQWHUHVW�DQG�WD[HV��0(�LV�WKH�PDUNHW�YDOXH�RI�HTXLW\��DQG�%/�LV�WKH�ERRN�YDOXHRI�WRWDO�OLDELOLWLHV��6L]H�HTXDOV�WRWDO�OLDELOLWLHV�QRUPDOL]HG�E\�WKH�WRWDO�YDOXH�RI�WKH�86�HTXLW\

Page 8: Altman Rijken (2004) (Ratings Stability)

PDUNHW��0NW��DQG�ORJ�WUDQVIRUPHG��OQ�%/�0NW���$JH�LV�WKH�QXPEHU�RI�\HDUV�VLQFH�D�ILUP�ZDVILUVW�UDWHG�E\�DQ�DJHQF\��� ,Q�RUGHU�WR�LQFUHDVH�WKH�HIIHFWLYHQHVV�RI�WKH�5(�7$���(%,7�7$��DQG0(�%/�YDULDEOHV�LQ�WKH�ORJLW�PRGHO�HVWLPDWH��WKHVH�YDULDEOHV�DUH�ORJ�WUDQVIRUPHG�DV�IROORZV�5(�7$�o �OQ�����5(�7$���(%,7�7$�o �OQ�����(%,7�7$��DQG�0(�%/�o ����OQ�0(�%/����7KH�FKRLFH�RI�PRGHO�YDULDEOHV�LV�LQVSLUHG�E\�WKH�=�VFRUH�PRGHO��$OWPDQ�������������� 7KH:.�7$�YDULDEOH�LV�D�SUR[\�IRU�WKH�VKRUW�WHUP�OLTXLGLW\�RI�D�ILUP��7KH�5(�7$���(%,7�7$��DQG�0(�%/�YDULDEOHV�SUR[\�IRU�KLVWRULF��FXUUHQW��DQG�IXWXUH�SURILWDELOLW\��UHVSHFWLYHO\��7KH0(�%/�YDULDEOH�DOVR�SUR[LHV�IRU�PDUNHW�OHYHUDJH��ZKLFK�FDQ�EH�LQWHUSUHWHG�DV�WKH�FXUUHQWZLOOLQJQHVV�RI�WKH�ILQDQFLDO�PDUNHW�WR�LQYHVW�LQ�D�SDUWLFXODU�ILUP��0XOWLSOH�LQWHUSUHWDWLRQV�DUHSRVVLEOH�IRU�WKH�0(�%/�YDULDEOH��DV�WKH�PDUNHW�YDOXH�RI�HTXLW\�LV�D�FDWFKDOO�YDULDEOH�RI�DFWXDOLQIRUPDWLRQ�UHJDUGLQJ�IXWXUH�HDUQLQJV��FRQILGHQFH�RI�LQYHVWRUV��DQG�RWKHU�LQGLFDWRUV�(PSLULFDO�HYLGHQFH�RI�D�³WRR�ELJ�WR�IDLO´�GHIDXOW�SURWHFWLRQ��� DQG�HPSLULFDO�HYLGHQFH�RI�DVWURQJ�QHJDWLYH�UHODWLRQVKLS�EHWZHHQ�$JH�DQG�WKH�GHIDXOW�UDWH��IRU�$JH�YDOXHV�EHORZ������PRWLYDWH�WKH�LQFOXVLRQ�RI�6L]H�DQG�$JH�YDULDEOHV�LQ�WKH�FUHGLW�VFRULQJ�PRGHOV�:H�GR�QRW�WU\�WR�ILQG�DQ�RSWLPDO�VHW�RI�PRGHO�YDULDEOHV�LQ�WKH�ORJLW�PRGHO��)LUVW��LW�ZRXOG�EHEH\RQG�WKH�VFRSH�RI�WKH�SDSHU�WR�UHSOLFDWH�WKH�QXPHURXV�VWXGLHV�RQ�ILQGLQJ�DQ�RSWLPDO�VHW�RIPRGHO�YDULDEOHV��� 6HFRQG��WKH�=�VFRUH�YDULDEOHV�KDYH�D�JRRG�WUDFN�UHFRUG��7KLUG��ZH�EHOLHYHWKDW�YDULDWLRQ�LQ�SUR[LHV�IRU�SURILWDELOLW\�DQG�OHYHUDJH�ZRXOG�LPSURYH�WKH�HIIHFWLYHQHVV�RI�WKHFUHGLW�VFRULQJ�PRGHOV�RQO\�PDUJLQDOO\�����3DUDPHWHU�HVWLPDWHV�RI�WKH�FUHGLW�VFRULQJ�PRGHOV'DWD�RQ�DJHQF\�UDWLQJV�LV�REWDLQHG�IURP�WKH�6WDQGDUG��3RRUV�&5(',7352�GDWDEDVH��WKH-XO\������YHUVLRQ��ZKLFK�LQFOXGHV�DOO�63�FRUSRUDWH�FUHGLW�UDWLQJV�LQ�WKH�SHULRG�-DQXDU\�������-XO\�������/HVV�WKDQ�KDOI�RI�WKH�GDWD�LQ�&5(',7352�FDQ�EH�OLQNHG�ZLWK�&203867$7GDWD��� 7KH�JUHDWHVW�VKDUH�RI�WKLV�UHGXFWLRQ�LQ�REVHUYDWLRQV�LV�DVFULEHG�WR�WKH�UHTXLUHPHQW�RIVWRFN�SULFH�GDWD�DYDLODELOLW\��ZKLFK�OLPLWV�WKH�VDPSOH�WR�SXEOLF�ILUPV��,Q�DGGLWLRQ��RQO\�QRQ�ILQDQFLDO�86�ILUPV�DUH�VHOHFWHG�7KH�SDQHO�GDWDVHW�FRYHUV�WKH�������������SHULRG�DQG�LQFOXGHV�WKH�WLPH�VHULHV�RI�������REOLJRUVZLWK�SHULRG�OHQJWKV�LQ�EHWZHHQ���DQG����\HDUV��,W�FRQWDLQV��������ILUP�\HDU�REVHUYDWLRQV�ZLWKNQRZQ�63�UDWLQJV�DQG�������ILUP�\HDU�REVHUYDWLRQV�ZLWK�QRQ�UDWHG�63�VWDWXV��� (DFK�ILUP�\HDU�REVHUYDWLRQ�FRQVLVWV�RI�WKH�63�UDWLQJ�DW�WKH�HQG�RI�-XQH�DQG�WKH�YDOXHV�RI�WKH�PRGHO�YDULDEOHV�NQRZQ�WR�WKH�SXEOLF�DW�WKDW�GDWH��0DUNHW�HTXLW\�YDOXHV�DUH�EDVHG�RQ�VWRFN�SULFH�DQGWRWDO�VKDUHV�RXWVWDQGLQJ�DW�WKH�HQG�RI�-XQH��7R�HQVXUH�WKDW�WKH�DFFRXQWLQJ�LQIRUPDWLRQ�LVSXEOLFO\�DYDLODEOH��DOO�EDODQFH�VKHHW�GDWD�UHIHU�WR�WKH�ODWHVW�ILVFDO�TXDUWHU�LQ�WKH�SUHYLRXVFDOHQGDU�\HDU��7KH�LQFRPH�VWDWHPHQW�GDWD�UHIHU�WR�WKH�IRXU�ILVFDO�TXDUWHUV�LQ�WKH�SUHYLRXVFDOHQGDU�\HDU��� 7KLV�VL[�PRQWK�ODJJLQJ�FRQGLWLRQ�IRU�DFFRXQWLQJ�LQIRUPDWLRQ�PD\�EHVRPHZKDW�FRQVHUYDWLYH��DV�PRVW�DFFRXQWLQJ�GDWD�EHFRPH�DYDLODEOH�LQ�WKH�ILUVW�PRQWKV�DIWHU�WKHHQG�RI�D�ILVFDO�\HDU�TXDUWHU��)RU�WURXEOHG�ILUPV��KRZHYHU��ILQDQFLDO�LQIRUPDWLRQ�LV��LQ�JHQHUDO�VORZHU�LQ�UHDFKLQJ�WKH�ILQDQFLDO�FRPPXQLW\�

Page 9: Altman Rijken (2004) (Ratings Stability)

7KH�SDQHO�REVHUYDWLRQV�DUH�VSOLW�LQWR�VXUYLYLQJ�REVHUYDWLRQV�DQG�GHIDXOWLQJ�REVHUYDWLRQV��)RUWKH��������VXUYLYLQJ�REVHUYDWLRQV��VWRFN�SULFH�GDWD�DUH�DYDLODEOH�ERWK�DW�WKH�HQG�RI�-XQH�LQFXUUHQW�\HDU�DQG�DW�WKH�HQG�RI�-XQH�LQ�WKH�VXEVHTXHQW�\HDU��� )RU�WKH�����GHIDXOWLQJREVHUYDWLRQV��GHIDXOW�HYHQWV�KDSSHQ�LQ�VXEVHTXHQW�\HDUV��� 7KH�GHSHQGHQW�ELQDU\�YDULDEOH�SL LQWKH�ORJLW�UHJUHVVLRQ�PRGHO��VHH�(TXDWLRQ������LV�HTXDO�WR���IRU�VXUYLYLQJ�REVHUYDWLRQV�DQG���IRUGHIDXOWLQJ�REVHUYDWLRQV�7DEOH�,�SURYLGHV�PHDQ�DQG�PHGLDQ�YDOXHV�IRU�WKH�PRGHO�YDULDEOHV��DIWHU�WUXQFDWLRQ�RI�WKHLUPRVW�H[WUHPH�YDOXHV��� 7KH�ORJ�WUDQVIRUPDWLRQV�RI�WKH�0(�%/���5(�7$��DQG�(%,7�7$�YDULDEOHV�UHGXFH�WKH�VNHZQHVV�LQ�WKHLU�SDQHO�GLVWULEXWLRQV�FRQVLGHUDEO\��7KH�SDQHO�GLVWULEXWLRQRI�WKH�0(�%/�YDULDEOH�FORVHO\�DSSURDFKHV�D�QRUPDO�GLVWULEXWLRQ�7KH�'3�PRGHO�SDUDPHWHUV�DUH�HVWLPDWHG�IRU�WKH�SHULRG������±�������VHH�WKH�ILUVW�FROXPQ�RI7DEOH�,,���7KH�VLJQV�RI�DOO�HVWLPDWHG�SDUDPHWHUV�PDWFK�H[SHFWDWLRQV��7KH�0(�%/�YDULDEOHWXUQV�RXW�WR�EH�WKH�GRPLQDQW�YDULDEOH�LQ�WKH�'3�PRGHO��� 7KLV�LV�FRQVLVWHQW�ZLWK�WKH�VXFFHVV�RI0RRG\V�.09�VWUXFWXUDO�PRGHO��LQ�ZKLFK�PDUNHW�HTXLW\�DQG�WRWDO�OLDELOLWLHV�SOD\�D�NH\�UROH�$OWKRXJK�WKH�0(�%/�YDULDEOH�LV�WKH�PRVW�LPSRUWDQW�YDULDEOH��DFFRXQWLQJ�LQIRUPDWLRQ�±SDUWLFXODUO\�WKH�REOLJRU�FKDUDFWHULVWLFV�RI�6L]H�DQG�$JH�±�DGG�VXEVWDQWLDOO\�WR�WKH�H[SODQDWLRQRI�WKH�LQFLGHQFH�RI�GHIDXOW�%HFDXVH�RI�WKH�DUELWUDU\�QDWXUH�RI�WKH�'3�PRGHO��WKH�UREXVWQHVV�RI�WKH�HVWLPDWHG�'3SDUDPHWHUV�LV�H[WHQVLYHO\�WHVWHG�x )RU�WZR�VXE�SHULRGV�������±������DQG������±�������WKH�'3�SDUDPHWHUV�ODUJHO\�DJUHH�ZLWKHDFK�RWKHU��WKXV�GHPRQVWUDWLQJ�WKH�WLPH�VWDELOLW\�RI�WKH�'3��PRGHO�IRU�WKH�HQWLUH������±�����SHULRG��2EVHUYDWLRQV�LQ�WKH�SHULRG������±����� DUH�H[FOXGHG�IURP�WKH�HVWLPDWLRQ�RIWKH�'3�PRGHO��,Q�WKLV�SHULRG��WKH�'3�SDUDPHWHUV�GLIIHU�VLJQLILFDQWO\�IURP�WKH�SHULRG�����±�������VHH�7DEOH�,,���7KH�(%,7�7$�YDULDEOH�KDV�EHFRPH�PRUH�LQIRUPDWLYH�RQ�FUHGLWTXDOLW\��)XUWKHUPRUH��WKH�WRR�ELJ�WR�IDLO�GHIDXOW�SURWHFWLRQ�KDV�GLVDSSHDUHG��,QVWHDG��ILUPVZLWK�ODUJH�6L]H�YDOXHV�H[SHULHQFHG�D�KLJKHU�GHIDXOW�UDWH�����ILUPV�ZLWK�OLDELOLWLHV�JUHDWHUWKDQ����ELOOLRQ�GHIDXOWHG�RYHU�WKH����PRQWK�SHULRG�EHWZHHQ�-DQXDU\������DQG�-XQH������VHH�$OWPDQ�DQG�%DQD���������:H�PXVW�ZDLW�WR�GHWHUPLQH�ZKHWKHU�WKHVH�DEUXSW�FKDQJHV�LQ'3�SDUDPHWHUV�UHSUHVHQW�D�UHJLPH�FKDQJH�RU�VKRXOG�EH�DVFULEHG�WR�WHPSRUDOO\�H[FHSWLRQDOFLUFXPVWDQFHV��1RWLFH�WKDW�D�ODUJH�QXPEHU�RI�ODUJH�OLDELOLW\�IDLOXUHV�KDYH�RFFXUUHG�LQ�WKHWHOHFRPPXQLFDWLRQV�VHFWRU�x :KHQ�FRQWUROOLQJ�IRU�LQGXVWU\�VHFWRU�GLIIHUHQFHV��WKH�'3�SDUDPHWHUV�FKDQJH�RQO\�VOLJKWO\�����DW�PRVW��%\�H[FHSWLRQ��WKH�HVWLPDWHG�SDUDPHWHU�RI�WKH�:.�7$�YDULDEOH�LQFUHDVHV�WR�DVLJQLILFDQW�YDOXH�RI�������:KHQ�HVWLPDWLQJ�WKH�'3�PRGHO�VHSDUDWHO\�E\�LQGXVWU\�VHFWRU�WKH�'3�SDUDPHWHUV�DUH�ODUJHO\�FRPSDUDEOH���x 7R�HQVXUH�WKDW�WKH�'3�SDUDPHWHUV�DUH�QRW�UHODWHG�HLWKHU�WR�WKLV�SDUWLFXODU�63�FRUSRUDWHERQG�GDWDVHW�RU�WKH�6WDQGDUG�DQG�3RRUV�GHILQLWLRQ�RI�GHIDXOW��WKH�'3�PRGHO�LV�UH�HVWLPDWHGIRU�DOO�EDQNUXSWFLHV��UHSRUWHG�E\�&203867$7���� 7KH�$JH�YDULDEOH�LV�RPLWWHG�LQ�WKLV�UH�HVWLPDWLRQ��'XH�WR�VSDFH�FRQVLGHUDWLRQV��WKHVH�UHVXOWV�DUH�QRW�SUHVHQWHG�LQ�WKLV�SDSHU����7KH�UHODWLYH�ZHLJKWV�RI�WKH�'3�SDUDPHWHUV�DSSHDU�WR�EH�UREXVW�WR�WKH�FKRLFH�RI�GDWDVHW�DQGWKH�GHILQLWLRQ�RI�WKH�GHIDXOW�HYHQW��:KHQ�XVLQJ�WKH�EDQNUXSWF\�GDWDVHW��WKH�UHODWLYH�ZHLJKW

Page 10: Altman Rijken (2004) (Ratings Stability)

��

RI�WKH�'3�SDUDPHWHUV�LV�VWDEOH�RYHU�WLPH��YDU\LQJ�DW�WKH�PRVW�E\�����EHWZHHQ�WKH�WZRVXE�SHULRGV������±������DQG������±�������7KLV�DOORZV�WKH�'3�PRGHO�WR�EH�FRQVLGHUHG�DVDQ�RXW�RI�VDPSOH�PRGHO�IRU�WKH�HQWLUH�SHULRG������±������,Q�VXPPDU\��IRU�WKH�SHULRG������±�������WKH�'3�PRGHO�LV�VWDEOH�RYHU�WLPH�DQG�UREXVW�WR�WKHGHILQLWLRQ�RI�GHIDXOW�DQG�WR�GDWDVHW�FKRLFH��,W�LV�DSSOLFDEOH�IRU�GLIIHUHQW�LQGXVWU\�VHFWRUV�DQGREOLJRUV�RI�GLIIHUHQW�VL]HV��7KLV�HPSKDVL]HV�WKH�XQLYHUVDO�FKDUDFWHU�WKDW�PDNHV�WKH�'3�PRGHO�DVXLWDEOH�EHQFKPDUN�IRU�DJHQF\�UDWLQJV��H[FOXGLQJ�WKH�ILQDQFLDO�VHFWRU��7KH�$5�SDUDPHWHUV�DUH�HVWLPDWHG�IRU�WKH�SHULRG������±�������VHH�WKLUG�FROXPQ�RI�7DEOH�,,��$OO�SDUDPHWHU�HVWLPDWHV�KDYH�WKH�H[SHFWHG�VLJQ��� $V�DUH�WKH�'3�SDUDPHWHUV��WKH�$5SDUDPHWHUV�DUH�UREXVW�WR�D�VSOLW�LQ�VDPSOH�SHULRG�������±������DQG������±�������2EVHUYDWLRQVIURP������DQG������DUH�H[FOXGHG�IURP�WKLV�PRGHO�HVWLPDWLRQ�DV�ZHOO��DV�WKH�$5�SDUDPHWHUVIRU�WKLV�SHULRG�GLIIHU�IRU�WKH�(%,7�7$�DQG�0(�%/�YDULDEOHV��VHH�7DEOH�,,���7KH�$5SDUDPHWHUV�DUH�UREXVW�WR�D�VSOLW�RI�REVHUYDWLRQV�LQWR�QRQ�LQYHVWPHQW�JUDGHG��%%��DQG�EHORZ�ILUPV�DQG�LQYHVWPHQW�JUDGHG��%%%��DQG�DERYH��ILUPV��� 7KH�$5�SDUDPHWHUV�GR�QRW�GHSHQGVLJQLILFDQWO\�RQ�WKH�DJHQF\�UDWLQJ�OHYHO��ZKLFK�HQDEOHV�XV�WR�PRGHO�WKH�HQWLUH�DJHQF\�UDWLQJVFDOH�ZLWK�RQH�VLQJOH�SDUDPHWHU�VHW�����,GHQWLI\LQJ�WKH�WLPH�KRUL]RQ�RI�WKH�DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO:KLOH�WKH�'3�PRGHO�KDV�D�NQRZQ�RQH�\HDU�KRUL]RQ�E\�FRQVWUXFWLRQ��WKH�$5�PRGHO�KDV�QRLPPHGLDWHO\�LGHQWLILDEOH�WLPH�KRUL]RQ��,Q�RUGHU�WR�PHDVXUH�WKH�LPSOLFLW�WLPH�KRUL]RQ�RI�WKH$5�PRGHO��ZH�FRPSDUH�WKH�$5�SDUDPHWHUV�ZLWK�WKRVH�RI�WKH�ORQJ�WHUP�GHIDXOW�SUHGLFWLRQPRGHOV��/'3�PRGHOV��$V�IRU�WKH�'3�PRGHO��WKH�/'3�PRGHOV�DUH�HVWLPDWHG�ZLWK�D�ORJLW�UHJUHVVLRQ�PRGHO��7KHVHOHFWLRQ�RI�VXUYLYLQJ�REVHUYDWLRQV��SL ����DQG�GHIDXOWLQJ�REVHUYDWLRQV��SL ����GHSHQGV�RQWKH�WLPH�KRUL]RQ��)RU�D�JLYHQ�WLPH�KRUL]RQ�7��VXUYLYLQJ�REVHUYDWLRQV�DUH�REVHUYDWLRQV�RI�ILUPVVXUYLYLQJ�EH\RQG�7�\HDUV��DQG�GHIDXOWLQJ�REVHUYDWLRQV�DUH�REVHUYDWLRQV�RI�ILUPV�GHIDXOWLQJZLWKLQ�7�\HDUV��7KH�/'3�PRGHO�UHSUHVHQWV�WKH�SUREDELOLW\�RI�GHIDXOW�LQ�WKH�FRPLQJ�7�\HDUV�/'3�PRGHOV�DUH�HVWLPDWHG�IRU�D�IRXU�\HDU�DQG�D�VL[�\HDU�KRUL]RQ��7KH�SDUDPHWHUV�RI�WKHVHPRGHOV�DUH�HVWLPDWHG�IRU�WKH�SHULRG������±������VHH�7DEOH�,,,���� %HFDXVH�WKH�VWDQGDUG�HUURUVLQ�WKH�ORJLW�UHJUHVVLRQ�HVWLPDWLRQ�RI�/'3�PRGHOV�DUH�D�JHQHUDOL]HG�YHUVLRQ�RI�WKH�+XEHU�DQG:KLWH�VWDQGDUG�HUURUV��WKH�DVVXPSWLRQV�RQ�HUURU�WHUP�GLVWULEXWLRQ�DQG�LQGHSHQGHQF\�DPRQJREVHUYDWLRQV�RI�WKH�VDPH�ILUP�FDQ�EH�UHOD[HG��7KHVH�VWDQGDUG�HUURUV�DFFRXQW�IRU�WKHRYHUODSSLQJ�SHULRGV�LQ�WKH�HVWLPDWLRQ�RI�WKH�/'3�PRGHO���7KH�UHODWLYH�ZHLJKWV�RI�WKH�PRGHO�YDULDEOHV�LQ�WKH�$5�PRGHO��'3�PRGHO�DQG�/'3�PRGHOV�DUHFRPSDUHG�XVLQJ�WKH�IROORZLQJ�IRUPXOD�

Page 11: Altman Rijken (2004) (Ratings Stability)

��

¦ ��M MM

LLL5: VEVE �����

ZKHUH�5:L LV�WKH�UHODWLYH�ZHLJKW�RI�PRGHO�YDULDEOH�L���L LV�WKH�SDUDPHWHU�HVWLPDWH�IRU�PRGHOYDULDEOH�L��DQG�1L LV�WKH�VWDQGDUG�GHYLDWLRQ�LQ�WKH�SDQHO�GLVWULEXWLRQ�RI�PRGHO�YDULDEOH�L�LQ�WKHSHULRG������±������7KH�0(�%/�YDULDEOH�GRPLQDWHV�LQ�WKH�'3�PRGHO�ZLWK�D�5:�YDOXH�RI���������7RJHWKHU�ZLWKWKH�6L]H�DQG�$JH�YDULDEOHV��WKH�WKUHH�YDULDEOHV�DFFRXQW�IRU�PRVW�RI�WKH�YDULDWLRQ�LQ�WKH�'3VFRUH��7KH�:.�7$��5(�7$��DQG�(%,7�7$�YDULDEOHV�SOD\�RQO\�D�PLQRU�UROH��7KH�$5�PRGHOJLYHV�WKH�PRVW�ZHLJKW�WR�WKH�6L]H�YDULDEOH�DQG��WR�D�OHVVHU�H[WHQW��WR�WKH�5(�7$�DQG�0(�%/YDULDEOHV��7KHVH�WKUHH�YDULDEOHV�DFFRXQW�IRU�PRVW�RI�WKH�YDULDWLRQ�LQ�WKH�$5�VFRUH�(VSHFLDOO\�IRU�WKH�5(�7$��0(�%/��DQG�$JH�YDULDEOHV��D�FOHDU�VKLIW�LQ�UHODWLYH�ZHLJKW�LVREVHUYHG�LQ�WKH�'3��/'3��DQG�$5�PRGHOV��LQ�WKDW�RUGHU��VHH�7DEOH�,,,���� 7KH�5:�YDOXHV�RIWKH�VL[�\HDU�/'3�PRGHO�PDWFK�PRVW�FORVHO\�ZLWK�WKH�5:�YDOXHV�RI�WKH�$5�PRGHO��1RWVXUSULVLQJO\��WKH�VKRUW�WHUP�RULHQWHG�'3�PRGHO�GHSHQGV�KHDYLO\�RQ�YDULDEOHV�ZKLFK�IROORZPRVW�FORVHO\�WKH�EXVLQHVV�F\FOH��OLNH�0(�%/��7KH�$5�PRGHO�DQG�/'3�PRGHO�SODFH�UHODWLYHO\PRUH�ZHLJKW�RQ�YDULDEOHV�ZKLFK�DUH�OHVV�VHQVLWLYH�WR�EXVLQHVV�F\FOHV��OLNH�KLVWRULFDO�HDUQLQJVDQG�6L]H��7KH�WUDGLWLRQDO�PHDVXUHV�RI�³IXQGDPHQWDO´�ULVN�GRPLQDWH�LQ�ORQJ�WHUP�PHDVXUHV�RIFUHGLW�ULVN��,Q�WKH�VKRUW�WHUP��KRZHYHU��LI�D�ILUP�LV�YDOXHG�SRRUO\�LQ�WKH�PDUNHWSODFH�DQG�QHHGVFDVK�WR�DYRLG�GHIDXOW��LW�ZLOO�GHIDXOW�)RU�VDPSOH�SHULRG������±������WKH�SDUDPHWHU�HVWLPDWHV�RI�WKH�FUHGLW�VFRULQJ�PRGHOV�GLIIHUVLJQLILFDQWO\�IURP�VDPSOH�SHULRG������±�������1R�VLJQLILFDQW�GLIIHUHQFHV�LQ�SDUDPHWHUHVWLPDWHV�DUH�REVHUYHG�EHWZHHQ�YDULRXV�VXE�SHULRGV�ZLWKLQ�D������± �����VDPSOH�SHULRG�%HFDXVH�WKH������± �����VDPSOH�REVHUYDWLRQV�KDYH�D�UHODWLYH�KHDY\�ZHLJKW�LQ�WKH�HVWLPDWLRQRI�WKH�'3�PRGHO���GXH�WR�WKH�ODUJH�QXPEHU�RI�GHIDXOWV�LQ������DQG��������ZH�FKRRVH�WRHVWLPDWH�WKH�'3�PRGHO�ZLWK�RQO\�WKH������±������VDPSOH�REVHUYDWLRQV��,Q�WKLV�FDVH�VR�D³UHDOLVWLF´�'3�PRGHO�LV�HVWLPDWHG�IRU�������SDUW�RI�WKH�WRWDO�VDPSOH��7KH�UHVXOWV�RI�WKHEHQFKPDUNLQJ�VWXG\�GR�QRW�GLIIHU�VLJQLILFDQWO\�EHWZHHQ�D������±������VDPSOH�DQG�D������±�����VDPSOH��:H�FKRRVH�WR�LQFOXGH�D�PD[LPXP�QXPEHU�RI�REVHUYDWLRQV�LQ�WKH�DQDO\VLV�,Q�WKH�UHPDLQGHU�RI�WKLV�SDSHU�WKH�$5�PRGHO�ZLOO�UHIHU�WR�WKH�HVWLPDWH�RI�WKH�DJHQF\�UDWLQJVFDOH�LQ�WKH�SHULRG������±������VHH�7DEOH�,,���WKH�'3�PRGHO�ZLOO�UHIHU�WR�WKH�HVWLPDWH�RI�WKHRQH�\HDU�GHIDXOW�SUREDELOLW\�LQ�SHULRG������±�������VHH�7DEOH�,,���DQG�WKH�/'3�PRGHO�ZLOOUHIHU�WR�WKH�HVWLPDWH�RI�WKH�VL[�\HDU�GHIDXOW�SUREDELOLW\�LQ�SHULRG������±�������VHH�7DEOH�,,,��&0�VFRUHV�UHIHU�LQ�JHQHUDO�WR�$5�VFRUHV��/'3�VFRUHV�DQG�'3�VFRUHV��7KH�EHQFKPDUN�DQDO\VLVLWVHOI�FRYHUV�WKH�SHULRG�������������

Page 12: Altman Rijken (2004) (Ratings Stability)

��

����0DWFKLQJ�&0�VFRUHV�ZLWK�DJHQF\�UDWLQJV,Q�RUGHU�H[DPLQH�WKH�FUHGLELOLW\�RI�$5�VFRUHV�DQG�'3�VFRUHV�WR�VHUYH�DV�D�EHQFKPDUN�IRUDJHQF\�UDWLQJV�WKH�&0�VFRUHV�DUH�PDWFKHG�ZLWK�DJHQF\�UDWLQJV��$YHUDJH�$5�VFRUHV�DQGDYHUDJH�'3�VFRUHV�DUH�FRPSXWHG�IRU�HDFK�DJHQF\�UDWLQJ�FODVV�1��,Q�)LJXUH�,��WKHVH�DYHUDJHYDOXHV�DUH�SORWWHG�DJDLQVW�D�QXPHULFDO�DJHQF\�UDWLQJ�VFDOH�\��&&&�&&�&� ����%�� ����%� ���$$�� �����$$� �����DQG�$$��$$$� �����7KLV�QXPHULFDO�UDWLQJ�VFDOH�LV�DQ�DUELWUDU\��EXW�TXLWHLQWXLWLYH��FKRLFH�WKDW�LV�FRPPRQO\�IRXQG�LQ�WKH�PDSSLQJ�RI�EDQN�LQWHUQDO�UDWLQJ�PRGHOV�WRDJHQF\�UDWLQJV�7KH�UHODWLRQVKLS�EHWZHHQ�WKH�DYHUDJH�'3�VFRUH�DQG�WKH�DJHQF\�UDWLQJ�1�LV�FORVH�WR�OLQHDU�$SSDUHQWO\��WKH�'3�VFRUHV�DUH�VXIILFLHQWO\�DQG�QHDUO\�HTXDOO\�GLVSHUVHG�RYHU�WKH�HQWLUHDJHQF\�UDWLQJ�VFDOH��2Q�D�PRUH�GHWDLOHG�OHYHO��WZR�JURXSV�RI�UDWLQJ�FODVVHV�ZLWK�DQ�DOPRVWSHUIHFW�OLQHDU�UHODWLRQVKLS�FDQ�EH�GLVWLQJXLVKHG��'3� �. ���1���0���)RU�QRQ�LQYHVWPHQW�UDWLQJFODVVHV���±����WKH�VORSH�J HTXDOV��������)RU�LQYHVWPHQW�UDWLQJ�FODVVHV���±�����WKH�VORSH�J HTXDOV�������VHH�)LJXUH�,���� 1RW�VXUSULVLQJO\�D�FRPSDUDEOH�SLFWXUH�DSSHDUV�IRU�$5�VFRUHV��ZLWK�J�YDOXHV�RI�������IRU�1�� >�������@�DQG�������IRU�1�� >�������@�DV�WKH�$5�PRGHO�LV�DQ�DJHQF\UDWLQJ�SUHGLFWLRQ�PRGHO��/HVV�REYLRXV�LV�WKH�FORVH�WR�OLQHDU�UHODWLRQVKLS�EHWZHHQ�'3�VFRUHVDQG�DJHQF\�UDWLQJV�7KH�VORSH�� GHSHQGV�ERWK�RQ�DJHQF\�UDWLQJ�FODVV�1�DQG�WLPH��� 7KH�WLPH�GHSHQGHQF\�RI�� LVLOOXVWUDWHG�LQ�7DEOH�,9��)RU�ERWK�WKH�'3�VFRUHV�DQG�WKH�$5�VFRUHV��WKH�WDEOH�SUHVHQWV�WKH�PHDQVFRUHV�IRU�WKH�SHULRGV������± �����DQG������±�������7KH�UHVXOWV�VXJJHVW�D�VOLJKW�LQFUHDVH�LQFUHGLW�TXDOLW\�GLVSHUVLRQ�ZLWKLQ�WKH�DJHQF\�UDWLQJ�VFDOH��2Q�WKH�XSSHU�VLGH�RI�WKH�DJHQF\�UDWLQJ�VFDOH��UDWLQJ�FODVVHV�$�DQG�DERYH��WKH�PHDQ�&0�VFRUHV�KDYH�LQFUHDVHG�RYHU�WLPH��VHHDOVR�/XFDV�DQG�/RQVNL���������%OXPH�DQG�FROOHDJXHV���������ZKR�UHYHDO�WKH�VDPH�ILQGLQJV�DVFULEH�WKLV�LQFUHDVH�LQ�FUHGLW�TXDOLW\�WR�WKH�PRUH�VWULQJHQW�UDWLQJ�VWDQGDUGV�VHW�E\�DJHQFLHV�LQWKHLU�UDWLQJ�DVVHVVPHQW��7KLV�H[SODQDWLRQ�LV�FRQVLVWHQW�ZLWK�WKH�GHFUHDVH�LQ�WKH�QXPEHU�RIREOLJRUV�LQ�WKH�XSSHU�VLGH�RI�WKH�DJHQF\�UDWLQJ�VFDOH��2Q�WKH�ORZHU�VLGH�RI�WKH�DJHQF\�UDWLQJVFDOH��UDWLQJ�FODVVHV�%%%�DQG�EHORZ���WKH�PHDQ�&0�VFRUHV�KDYH�GHFUHDVHG�RYHU�WLPH��,I�&0VFRUHV�DUH�WLPH�UREXVW�PHDVXUHV�RI�DEVROXWH�FUHGLW�TXDOLW\��WKLV�VKRXOG�LPSO\�D�GHWHULRUDWLRQ�LQFUHGLW�TXDOLW\�IRU�WKH�ORZHU�UDWLQJ�FODVVHV��7KH�LQFUHDVH�LQ�GHIDXOW�UDWHV�IRU�WKH�ORZHU�UDWLQJFODVVHV�LQ�WKH�ODVW�WKUHH�GHFDGHV��DV�UHSRUWHG�E\�=KRX���������VXSSRUWV�WKLV�VXJJHVWLRQ�7KH�WUDFWDEOH�OLQHDU�UHODWLRQVKLS�EHWZHHQ�&0�VFRUHV�DQG�WKH�QXPHULFDO�DJHQF\�UDWLQJ�VFDOHSURYLGHV�IXUWKHU�VXSSRUW�IRU�WKH�DELOLW\�RI�&0�VFRUHV�WR�EHQFKPDUN�WKH�HQWLUH�DJHQF\�UDWLQJVFDOH�FRQVLVWHQWO\��0RUHRYHU��WKH�DFFXUDF\�RI�&0�VFRUHV�LV�FRPSDUDEOH�IRU�WKH�ORZHU�DQGXSSHU�SDUWV�RI�WKH�DJHQF\�UDWLQJ�VFDOH��$Q�LQGLFDWLRQ�RI�WKH�DFFXUDF\�RI�WKH�&0�VFRUHV�UHODWLYH�WR�WKH�DJHQF\�UDWLQJ�VFDOH��LV�WKH�VWDQGDUG�GHYLDWLRQ�LQ�&0�VFRUHV�ZLWKLQ�D�SDUWLFXODUUDWLQJ�FODVV�1��VHH�7DEOH�,9���$IWHU�FRQWUROOLQJ�IRU����WKH�VWDQGDUG�GHYLDWLRQ�LQ�&0�VFRUHVYDULHV�RQO\�XS�WR������OHDYLQJ�DVLGH�WKH�DJHQF\�UDWLQJ�FODVVHV���DQG����'LYLGLQJ�WKH�VWDQGDUG�GHYLDWLRQ�LQ�&0�VFRUHV�E\�J JLYHV�DQ�LQGLFDWLRQ�RI�WKH�VWDQGDUGGHYLDWLRQ�LQ�&0�VFRUHV��LQ�WHUPV�RI�QRWFK�VWHSV��)RU�H[DPSOH��FUHGLW�TXDOLW\�DV�SUHGLFWHG�E\

Page 13: Altman Rijken (2004) (Ratings Stability)

��

WKH�$5�PRGHO�YDULHV�E\�DERXW���QRWFK�VWHSV�ZLWKLQ�D�SDUWLFXODU�UDWLQJ�FODVV��7KH�ODUJHYDULDWLRQ�LQ�&0�VFRUHV�FDQ�EH�DVFULEHG�QHLWKHU�WR�WKH�VXSSRVHG�QRLV\�FKDUDFWHU�RI�&0�VFRUHVQRU�WR�WKH�OLPLWHG�FUHGLW�TXDOLW\�LQIRUPDWLRQ�LQFRUSRUDWHG�LQ�WKH�PRGHO�YDULDEOHV��DV�FRPSDUHGWR�WKH�LQIRUPDWLRQ�DYDLODEOH�WR�DJHQFLHV��,Q�WKDW�FDVH��WKH�SHUIRUPDQFH�RI�&0�VFRUHV�LQSUHGLFWLQJ�GHIDXOW�HYHQWV�LV�H[SHFWHG�WR�EH�LQIHULRU�WR�WKDW�RI�DJHQF\�UDWLQJV��7KH�GHIDXOW�SUHGLFWLRQ�SHUIRUPDQFH�RI�&0�VFRUHV�LV�DFWXDOO\�FRPSDUDEOH�WR�DJHQF\�UDWLQJV��VOLJKWO\�EHWWHULQ�WKH�VKRUW�WHUP��EXW�VOLJKWO\�ZRUVH�LQ�WKH�ORQJ�WHUP��� &0�VFRUHV�DQG�DJHQF\�UDWLQJV�DUHHTXDOO\�LQIRUPDWLYH�RQ�FUHGLW�TXDOLW\��7KH�FUHGLW�TXDOLW\�RI�ILUPV�DSSDUHQWO\�GLYHUJHVFRQVLGHUDEO\�ZLWKLQ�DQ�DJHQF\�UDWLQJ�FODVV�DQG�RYHUODSV�VLJQLILFDQWO\�ZLWK�QHLJKERULQJDJHQF\�UDWLQJ�FODVVHV�

Page 14: Altman Rijken (2004) (Ratings Stability)

��

,,,�%HQFKPDUN�DQDO\VLV����%HQFKPDUN�UHVHDUFK�VHWXS&UHGLW�PRGHO�VFRUHV��&0�VFRUHV��DUH�SRLQW�LQ�WLPH�PHDVXUHV�RI�VKRUW�DQG�ORQJ�WHUP�GHIDXOWULVN��LQ�WKH�VHQVH�WKDW�WKH\�PDNH�PD[LPXP�XVH�RI�WKH�PRVW�UHFHQW�GDWD�RQ�WKH�PRGHO�YDULDEOHVWR�PDNH�DQ�RSWLPDO�IRUHFDVW��$5�VFRUHV�PHDVXUH�WKH�SRLQW�LQ�WLPH�LPSOLFDWLRQV�RI�WKH�PRGHOYDULDEOHV�IRU�IXWXUH�FUHGLW�UDWLQJV��)OXFWXDWLRQV�LQ�$5�VFRUHV�ZRXOG�WUDQVODWH�GLUHFWO\�LQWRUDWLQJ�PLJUDWLRQV�ZHUH�DJHQFLHV�WR�UHDFW�LPPHGLDWHO\�WR�DOO�IOXFWXDWLRQV�LQ�PRGHO�YDULDEOHVDFFRUGLQJ�WR�WKH�$5�PRGHO��:KLOH�$5�VFRUHV��LPPHGLDWHO\��IROORZ�FKDQJHV�LQ�FUHGLWIXQGDPHQWDOV��WKH�PLJUDWLRQ�SROLFLHV�RI�DJHQFLHV�FDXVH�WKRVH�FKDQJHV�WR�EH�JUDGXDO��6KRXOGWKH�FKDQJHV�LQ�IXQGDPHQWDOV�WXUQ�RXW�WR�EH�WHPSRUDU\��LW�LV�SRVVLEOH�WKDW�QR�FKDQJH�LQ�UDWLQJVZLOO�DFWXDOO\�RFFXU�5HJDUGOHVV�RI�ZKHWKHU�FKDQJHV�LQ�PRGHO�YDULDEOHV��L�H���FUHGLW�IXQGDPHQWDOV��KDYH�DSHUPDQHQW�RU�WHPSRUDU\�FKDUDFWHU��WKH\�DOO�OHDG�WR�FKDQJHV�LQ�&0�VFRUHV��7KH�H[WHQW��WR�ZKLFKWKHVH�VFRUHV�LQFRUSRUDWH�LQIRUPDWLRQ�RQ�WHPSRUDU\�IOXFWXDWLRQV�LQ�FUHGLW�TXDOLW\�GHSHQGV�RQWKH�QDWXUH�RI�WKH�FUHGLW�VFRULQJ�PRGHO�DQG�WKH�WLPH�KRUL]RQ�LQ�WKH�GHIDXOW�SUHGLFWLRQ�PRGHO�'3�PRGHO�VFRUHV�DUH�H[SHFWHG�WR�EH�PRVW�VHQVLWLYH�WR�WHPSRUDU\�FKDQJHV�LQ�FUHGLW�TXDOLW\��GXHWR�WKHLU�VKRUW��RQH�\HDU�GHIDXOW�KRUL]RQ��%RWK�WKH�/'3�PRGHO�DQG�WKH�$5�PRGHO�UHSUHVHQW�DYLHZ�RQ�ORQJ�WHUP�GHIDXOW�ULVN��7KH�VHQVLWLYLW\�WR�VKRUW�WHUP�IOXFWXDWLRQV�LQ�FUHGLW�TXDOLW\PLJKW�GLIIHU�EHWZHHQ�WKHVH�WZR�PRGHOV��7KH�/'3�PRGHO�VXSSUHVVHV�VHQVLWLYLW\�WR�WHPSRUDU\FUHGLW�TXDOLW\�FKDQJHV�E\�H[WHQGLQJ�WKH�GHIDXOW�KRUL]RQ��7KH�$5�PRGHO�LV�OHVV�VHQVLWLYH�WRWHPSRUDU\�FUHGLW�TXDOLW\�FKDQJHV��EHFDXVH�LW�PRGHOV�DJHQF\�UDWLQJV�WKDW�DUH�PHDQW�WR�EHLQVHQVLWLYH�WR�VKRUW�WHUP�FUHGLW�TXDOLW\�IOXFWXDWLRQV�7HFKQLFDOO\��WKH�VHQVLWLYLW\�RI�&0�VFRUHV�WR�WHPSRUDU\�IOXFWXDWLRQV�YDULHV�EHFDXVH�RI�WKHGLIIHUHQFHV�LQ�ZHLJKW�IRU��UHODWLYHO\�VKRUW�WHUP�RULHQWHG��PDUNHW�LQIRUPDWLRQ�DQG�GLIIHUHQFHVLQ�ZHLJKW�IRU�WUDGLWLRQDO�PHDVXUHV�RI�IXQGDPHQWDO�ULVN��VHH�7DEOH�,,,���&RPSDUHG�WR�WKH�$5PRGHO��WKH�/'3�PRGHO�LV�VOLJKWO\�PRUH�UHVSRQVLYH�WR�PDUNHW�LQIRUPDWLRQ�DQG�OHVV�UHVSRQVLYHWR�KLVWRULFDO�HDUQLQJV��VHH�7DEOH�,,,���7KH�KLJKHU�ZHLJKW�IRU�PDUNHW�LQIRUPDWLRQ�PDNHV�/'3VFRUHV�PRUH�VHQVLWLYH�WR�WHPSRUDU\�FKDQJHV�LQ�FUHGLW�TXDOLW\��DV�FRPSDUHG�WR�$5�VFRUHV�$OWKRXJK�DQ�H[WHQVLRQ�RI�WKH�WLPH�KRUL]RQ�LQ�WKH�/'3�PRGHO�FRXOG�SUREDEO\�FORVH�WKH�JDSEHWZHHQ�/'3�VFRUHV�DQG�$5�VFRUHV��WKH�VDPSOH�SHULRG�OLPLWV�D�VHQVLEOH�DQDO\VLV�WR�DERXW�VL[\HDUV�)LJXUH�,,�VKRZV�WKH�EDVLF�FRQFHSW�RI�EHQFKPDUN�DQDO\VLV��)RXU�PHDVXUHV�RI�GHIDXOWSUREDELOLW\��ZLWK�GLIIHUHQW�VWDELOLW\�SURSHUWLHV��DUH�FRPSDUHG�WR�HDFK�RWKHU��$JHQF\�UDWLQJV�DQGWKH�'3�PRGHO�DUH�SODFHG�DW�RSSRVLWH�HQGV�RI�WKH�VWDELOLW\�VSHFWUXP��7KH�WKUHH�SRLQW�LQ�WLPHFUHGLW�VFRULQJ�PRGHOV�DUH�FRPSDWLEOH�ZLWK�WKH�REMHFWLYHV�RI�LQWHUQDO�UDWLQJ�PRGHOV�LQ�EDQNVDQG�ZLWK�WKH�LQYHVWRUV�SHUVSHFWLYH�RQ�FUHGLW�TXDOLW\��DQ�HVWLPDWH�RI�WKH�H[SHFWHG�GHIDXOW�UDWHLQ�WKH�QH[W���± ��\HDUV��$�WUXH�SUR[\�IRU�WKH�LQYHVWRUV�SRLQW�LQ�WLPH�SHUFHSWLRQ�LV�GLIILFXOW�WRDFKLHYH��RI�FRXUVH��DV�QHLWKHU�D�SUHFLVH�UHIHUHQFH�QRU�D�WKHRUHWLFDO�IUDPHZRUN�H[LVWV�IRU�WKLVSHUVSHFWLYH��8OWLPDWHO\��D�GHIDXOW�SUHGLFWLRQ�PRGHO�XVLQJ�WKH�EHVW�ORQJ�WHUP�GHIDXOW�

Page 15: Altman Rijken (2004) (Ratings Stability)

��

SUHGLFWLRQ�SHUIRUPDQFH�LQ�UHFHQW�KLVWRU\�JLYHV�WKH�EHVW�HVWLPDWH�RI�SRLQW�LQ�WLPH�FUHGLWTXDOLW\�7KH�$5�PRGHO�EULGJHV�WKH�JDS�EHWZHHQ�DJHQF\�UDWLQJV�DQG��/�'3�PRGHO�VFRUHV��DQG�HQDEOHVWKH�XQDPELJXRXV�H[SORUDWLRQ�RI�WKH�WZR�DVSHFWV�RI�WKURXJK�WKH�F\FOH�PHWKRGRORJ\��L�H���ORQJ�WHUP�KRUL]RQ�DQG�SUXGHQW�PLJUDWLRQ�SROLF\��ZLWK�UHJDUG�WR�UDWLQJ�VWDELOLW\��'LIIHUHQFHV�LQG\QDPLFV�EHWZHHQ�DJHQF\�UDWLQJV�DQG�$5�VFRUHV�UHIOHFW�DOPRVW�HQWLUHO\�WKH�LQIOXHQFH�RISUXGHQW�PLJUDWLRQ�SROLF\��'LIIHUHQFHV�LQ�G\QDPLFV�EHWZHHQ�$5�VFRUHV�DQG�WKH�'3�PRGHOUHIOHFW�WKH�LQIOXHQFH�RI�WKH�GHIDXOW�KRUL]RQ��'LIIHUHQFHV�EHWZHHQ�$5�VFRUHV�DQG�/'3�VFRUHVUHIOHFW�RQO\�WKH�GLIIHUHQW�ZHLJKWLQJ�RQ�IXQGDPHQWDO�ULVN�GULYHUV�EHWZHHQ�DJHQF\�UDWLQJV�DQGFUHGLW�VFRULQJ�PRGHOV�����&RQYHUVLRQ�RI�&0�VFRUHV�WR�&0�UDWLQJV$JHQF\�UDWLQJ�G\QDPLFV�DUH�EHQFKPDUNHG�DJDLQVW�WKH�G\QDPLFV�RI�&0�VFRUHV��)RU�D�SURSHUFRPSDULVRQ��&0�VFRUHV�DUH�FRQYHUWHG�WR�&0�UDWLQJV��ZKLFK�DUH�HTXLYDOHQW�WR�DJHQF\�UDWLQJV�(DFK�\HDU��DW�WKH�HQG�RI�-XQH��DOO�ILUPV�DUH�UDQNHG�E\�&0�VFRUHV��2Q�WKH�EDVLV�RI�WKLV�UDQNLQJ�VL[WHHQ�&0�UDWLQJV��$$$�$$���$$��«���%���&&&�&&���HTXLYDOHQW�WR�DJHQF\�UDWLQJV��DUHDVVLJQHG�WR�DOO�ILUPV��(DFK�\HDU��WKH�QXPEHU�RI�ILUPV�ZLWKLQ�HDFK�&0�UDWLQJ�FODVV�LV�H[DFWO\HTXDO�WR�WKH�QXPEHU�RI�ILUPV�LQ�WKH�HTXLYDOHQW�DJHQF\�UDWLQJ�FODVV��,Q�RUGHU�WR�FDOFXODWHDYHUDJH�PLJUDWLRQ�ILJXUHV��QXPEHUV�DUH�DVVLJQHG�WR�DJHQF\�UDWLQJV�DQG�&0�UDWLQJV�&&&�&&�&� ����%�� ����%� ����«����$$�� �����$$� �����DQG�$$��$$$� ����

Page 16: Altman Rijken (2004) (Ratings Stability)

��

,9�%HQFKPDUNLQJ�DJHQF\�UDWLQJ�G\QDPLFV5DWLQJ�PLJUDWLRQ�SUREDELOLW\�LV�D�GLUHFW�PHDVXUH�RI�UDWLQJ�VWDELOLW\��$JHQFLHV�ORQJ�WHUPGHIDXOW�KRUL]RQV�DQG�SUXGHQW�PLJUDWLRQ�SROLFLHV�ERWK�UHGXFH�WKH�UDWLQJ�PLJUDWLRQ�SUREDELOLW\�7KH�H[WHQW�WR�ZKLFK�DJHQF\�UDWLQJ�PLJUDWLRQ�SUREDELOLW\�LV�UHGXFHG�DQG�WKH�UHODWLYHLPSRUWDQFH�RI�WKHVH�WZR�VRXUFHV��DV�REVHUYHG�IURP�WKH�LQYHVWRUV�SRLQW�LQ�WLPH�SHUVSHFWLYH��LVWKH�DLP�RI�WKH�EHQFKPDUN�VWXG\�7KH�UDWLQJ�GULIW�SURSHUWLHV�RI�DJHQF\�UDWLQJV�DUH�DOVR�FRPSDUHG�WR�&0�UDWLQJV��%RQG�UDWLQJGULIW��D�VHULHV�RI�PLOG�GRZQJUDGHV��RU�XSJUDGHV��ZDV�ILUVW�GHVFULEHG�E\�$OWPDQ�DQG�.DR��������������%RWK�WKH�GLUHFWLRQ�IURP�ZKLFK�D�UDWLQJ�FODVV�LV�UHDFKHG�DQG�WKH�WLPH�SHULRG�RI�D�VWD\�LQD�SDUWLFXODU�FODVV��DUH�FRUUHODWHG�ZLWK�WKH�IROORZLQJ�GRZQJUDGH�RU�XSJUDGH�LQWHQVLW\��VHH�DOVR/DQGR�DQG�6N¡GHEHUJ��������)LUVW�WKH�G\QDPLF�SURSHUWLHV�RI�'3�UDWLQJV��$5�UDWLQJV�DQG�DJHQF\�UDWLQJV�DUH�LQYHVWLJDWHG�LQGHWDLO��6HFWLRQ�����DQG�������,Q�WKH�EHQFKPDUNLQJ�RI�WKH�UDWLQJ�WLPHOLQHVV��UHVXOWV�DUH�DOVRSUHVHQWHG�IRU�/'3�UDWLQJV��6HFWLRQ����������8QFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ7KH�DYHUDJH�UDWLQJ�PLJUDWLRQ�IRU�DOO�REVHUYDWLRQV�LV�WKH�XQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ��7KHXQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ�LV�HYDOXDWHG�IRU�DJHQF\�UDWLQJV�DQG�&0�UDWLQJV�WR�PDNH�VXUHWKDW�GLIIHUHQFHV�LQ�UDWLQJ�G\QDPLFV�DUH�QRW�LPSRVHG�E\�WKH�ERXQGDULHV�RI�WKH�GDWDVHW��7KHXQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ�LV�HTXDO�WR��������IRU�DJHQF\�DQG�$5�UDWLQJV�DQG�������IRU�'3UDWLQJV��7KLV�XQFRQGLWLRQDO�GRZQZDUG�PLJUDWLRQ�LV�HTXDO�WR�WKH�GLIIHUHQFH�LQ�UDWLQJ�OHYHOEHWZHHQ�ILUPV�HQWHULQJ�WKH�GDWDVHW�DQG�ILUPV�H[LWLQJ�WKH�GDWDVHW��GLYLGHG�E\�WKH�QXPEHU�RI\HDUV�RI�XQEURNHQ�VWD\�LQ�WKH�GDWDVHW�� �RQ�DYHUDJH������\HDUV���)LUPV�HQWHU�WKH�GDWDVHW�����DWWKH�EHJLQQLQJ�RI�WKH�GDWDVHW�LQ�����������ZKHQ�WKH\�DUH�QHZO\�UDWHG������ZKHQ�WKHLU�QRQ�UDWHGDJHQF\�UDWLQJ�VWDWXV�LV�OLIWHG��RU�����ZKHQ�&203867$7�GDWD�EHFRPH�DYDLODEOH��)LUPV�H[LWWKH�GDWDVHW�����DW�WKH�HQG�RI�WKH�GDWDVHW�LQ�����������LQ�FDVH�RI�D�GHIDXOW�HYHQW������ZKHQ�DUDWLQJ�FKDQJHV�WR�D�QRQ�UDWHG�VWDWXV��RU�����ZKHQ�&203867$7�GDWD�EHFRPH�XQDYDLODEOH���7DEOH�9�SUHVHQWV�WKH�DQDO\VLV�RI�WKH�XQFRQGLWLRQDO�PLJUDWLRQ�RI�DJHQF\�UDWLQJV�DQG�&0UDWLQJV��7KHVH�UDWLQJV�DJUHH�RQ�WKH�UDWLQJ�OHYHO�DW�ZKLFK�ILUPV�HQWHU�WKH�GDWDVHW�5(1 DQG�RQ�WKHUDWLQJ�OHYHO�DW�ZKLFK�ILUPV�H[LW�WKH�GDWDVHW�5(;��5(1 LV�DERXW����%%���DQG�5(; LV�DERXW����%%��UHVXOWLQJ�LQ�DQ�XQFRQGLWLRQDO�GRZQZDUG�PLJUDWLRQ�RI�DERXW���QRWFK�IRU�DOO�ILUPV�GXULQJ�WKHLUVWD\�LQ�WKH�GDWDVHW��'LYLGLQJ�WKLV�ILJXUH�E\�WKH�DYHUDJH�WLPH�SHULRG�RI������\HDUV�RI�XQEURNHQVWD\�LQ�WKH�GDWDVHW�JLYHV�WKH�XQFRQGLWLRQDO�DQQXDO�UDWLQJ�PLJUDWLRQ�RI��������*URXSLQJ�E\UHDVRQ�WR�H[LW�DQG�HQWHU�WKH�GDWDVHW�UHYHDOV�WKDW�����RI�WKLV�XQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ�LVGXH�WR�ILQDQFLDOO\�WURXEOHG�ILUPV�LQ�WKH���±���\HDUV�DSSURDFKLQJ�WKH�GHIDXOW�HYHQW��:KHQ�WKHVHILUP�\HDU�REVHUYDWLRQV�DUH�HOLPLQDWHG�IURP�WKH�GDWDVHW��5(;�DSSURDFKHV�5(1�

Page 17: Altman Rijken (2004) (Ratings Stability)

��

����5DWLQJ�PLJUDWLRQ�SUREDELOLW\�DQG�UDWLQJ�GULIW)RU�DJHQF\�UDWLQJV�DQG�&0�UDWLQJV��WKH�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQ�'5��LQ�WHUPV�RI�QRWFKVWHSV��LV�GHWHUPLQHG�DV�IROORZV��'5�������'5� ����«���XS�WR�'5� ����'5�!����7KH�V\PPHWULFSURSHUWLHV�RI�WKLV�GLVWULEXWLRQ�DUH�H[DPLQHG�ZLWK�WKH�DYHUDJH�UDWLQJ�PLJUDWLRQ�ILJXUH�DQG�WKHUDWLR�EHWZHHQ�WKH�QXPEHU�RI�GRZQJUDGHV�'�DQG�XSJUDGHV�8��'�8���7KH�WZR�VLGHG�VLJQ�WHVWGHWHUPLQHV�ZKHWKHU�WKH�QXPEHU�RI�GRZQJUDGHV�GHYLDWHV�VLJQLILFDQWO\�IURP�WKH�QXPEHU�RIXSJUDGHV�7KH�RQH�\HDU�PLJUDWLRQ�SUREDELOLW\�LV�������IRU�DJHQF\�UDWLQJV��������IRU�$5�UDWLQJV��DQG������IRU�'3�UDWLQJV��LQFOXGLQJ�PLJUDWLRQV�WR�GHIDXOW��VHH�7DEOH�9,���7KHVH�VLJQLILFDQWGLIIHUHQFHV�LPSO\�WKDW�ERWK�ORQJ�WHUP�GHIDXOW�KRUL]RQ�DQG�PLJUDWLRQ�SROLF\�KDYH�D�VLJQLILFDQWLPSDFW�RQ�WKH�DJHQF\�UDWLQJ�VWDELOLW\��7KHVH�XQFRQGLWLRQDO�PLJUDWLRQ�SUREDELOLW\�ILJXUHV�DUHUREXVW�WR�VSOLWV�LQ�ERWK�LQYHVWPHQW�JUDGHG�DQG�QRQ�LQYHVWPHQW�JUDGHG�ILUPV�DQG�WR�VSOLWV�LQ�WKHVDPSOH�SHULRG�&RQGLWLRQDO�RQ�WKH�DEVHQFH�RI�UDWLQJ�PLJUDWLRQ�LQ�WKH�SUHYLRXV�DQQXDO�SHULRG��WKH�DYHUDJHDJHQF\�UDWLQJ�PLJUDWLRQ�LV��������DERXW�HTXDO�WR�WKH�XQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ�&RQGLWLRQDO�RQ�D�GRZQJUDGH�LQ�WKH�SUHYLRXV�DQQXDO�SHULRG��WKH�DYHUDJH�DJHQF\�UDWLQJPLJUDWLRQ�LV��������$W�WKH�VDPH�WLPH��FRQGLWLRQDO�RQ�DQ�XSJUDGH�LQ�SUHYLRXV�DQQXDO�SHULRG��WKHDYHUDJH�DJHQF\�UDWLQJ�PLJUDWLRQ�LV��������7KH�XSZDUG�GULIW�LQ�DJHQF\�UDWLQJV�LV�PXFK�VPDOOHUWKDQ�WKH�GRZQZDUG�GULIW�LQ�DJHQF\�UDWLQJV��7KLV�DV\PPHWULF�EHKDYLRU�LQ�UDWLQJ�GULIW�LV�UHSRUWHGE\�$OWPDQ�DQG�.DR���������:KHQ�FRQWUROOLQJ�IRU�XQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ��WKH�UDWLQJGULIW�LV�RI�HTXDO�PDJQLWXGH�DW�ERWK�WKH�GRZQVLGH�DQG�WKH�XSVLGH��7KLV�LPSOLHV�WKDW�WKHXQGHUO\LQJ�VRXUFH�RI�UDWLQJ�GULIW�LV�HTXDOO\�HIIHFWLYH�LQ�ERWK�GLUHFWLRQV�,Q�FRQWUDGLFWLRQ�WR�DJHQF\�UDWLQJV��QR�VLJQLILFDQW�UDWLQJ�GULIW�LV�REVHUYHG�IRU�'3�UDWLQJV�DQG$5�UDWLQJV��&RQGLWLRQDO�RQ�WKH�UDWLQJ�PLJUDWLRQ�LQ�WKH�SUHYLRXV�\HDU��WKH�DYHUDJH�$5�UDWLQJPLJUDWLRQ�DQG�WKH�DYHUDJH�'3�UDWLQJ�PLJUDWLRQ�GR�QRW�GLIIHU�VLJQLILFDQWO\�IURP�WKHXQFRQGLWLRQDO�UDWLQJ�PLJUDWLRQV�RI�������DQG��������UHVSHFWLYHO\��$�UDWLQJ�GULIW�FDQQRW�EHH[SODLQHG�VROHO\�RQ�WKH�EDVLV�RI�IXQGDPHQWDO�FUHGLW�TXDOLW\�LQIRUPDWLRQ��5DWLQJ�GULIW�LQ�DJHQF\UDWLQJV�LV�DSSDUHQWO\�D�PLJUDWLRQ�SROLF\�HIIHFW�DQG�QRW�WKH�UHVXOW�RI�D�GULIW�LQ�WKH�FUHGLW�TXDOLW\IXQGDPHQWDOV��DV�UHIOHFWHG�E\�WKH�PRGHO�YDULDEOHV�LQ�FUHGLW�VFRULQJ�PRGHOV��&DQWRU�DQG+DPLOWRQ��������KDYH�VKRZQ�WKDW�VHULDO�GHSHQGHQFH�LQ�UDWLQJV�ODUJHO\�GLVDSSHDUV�RQFH�UDWLQJVDUH�FRQGLWLRQHG�RQ�WKHLU�RXWORRN�RU�ZDWFKOLVW�VWDWXV��2Q�WKH�EDVLV�RI�WKH�PRVW�UHFHQW�DQG�IXOOVHW�RI�FUHGLW�TXDOLW\�LQIRUPDWLRQ�SURYLGHG�E\�DJHQFLHV��WKHUHIRUH��FUHGLW�TXDOLW\�FKDQJHV�DUHQRW��RU�DUH�DW�OHDVW�PXFK�OHVV��SUHGLFWDEOH�IURP�KLVWRULF�FKDQJHV�LQ�FUHGLW�TXDOLW\��ZKLFK�LVFRQVLVWHQW�ZLWK�DEVHQFH�RI�GULIW�LQ�&0�UDWLQJV��,Q�ILUVW�LQVWDQFH�DJHQFLHV�SDUWLDOO\�XSGDWH�WKHLUUDWLQJV�LQ�UHVSRQVH�WR�FKDQJHV�LQ�FUHGLW�TXDOLW\�DQG�WDNH�WLPH�WR�GHWHUPLQH�ZKHWKHU�WKH�FUHGLW�TXDOLW\�FKDQJHV�DUH�WHPSRUDULO\�RU�SHUPDQHQW��0HDQZKLOH��RXWORRNV�DQG�ZDWFKOLVWV�SURYLGHLQYHVWRUV�ZLWK�PRUH�XS�WR�GDWH�LQIRUPDWLRQ�RQ�FKDQJHV�LQ�FUHGLW�TXDOLW\�

Page 18: Altman Rijken (2004) (Ratings Stability)

��

����7LPHOLQHVV�RI�DJHQF\�UDWLQJV&RQGLWLRQDO�RQ�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW��DYHUDJH�FKDQJHV�LQ�&0�UDWLQJV�VXUURXQGLQJWKH�PLJUDWLRQ�HYHQW�DUH�LQYHVWLJDWHG��7KH�PDJQLWXGH�RI�WKH�FRQGLWLRQDO�FKDQJHV�LQ�&0�UDWLQJVMXVW�EHIRUH�WKH�DJHQF\�PLJUDWLRQ�HYHQW�LV�DQ�LQGLFDWLRQ�RI�WKH�WLPHOLQHVV�RI�DJHQF\�UDWLQJV�)RU�HDFK�\HDU�7��DW�WKH�HQG�RI�-XQH��ILUPV�DUH�FODVVLILHG�LQWR�WKUHH�VDPSOHV��FRQGLWLRQDO�RQ�WKHDJHQF\�UDWLQJ�PLJUDWLRQ�û17���7 LQ�WKH�SUHYLRXV�DQQXDO�SHULRG��RQH�VDPSOH�RI�ILUPV�ZLWK�DQXSJUDGH��û17���7 !�����RQH�VDPSOH�RI�ILUPV�ZLWK�D�GRZQJUDGH��û17���7 ������DQG�RQH�VDPSOH�RIILUPV�ZLWK�QR�PLJUDWLRQ��û17���7 �����)RU�HDFK�RI�WKHVH�WKUHH�VDPSOHV��WKH�DYHUDJH�UDWLQJFKDQJH�û57�W���7�W �DJHQF\�UDWLQJV�RU�&0�UDWLQJV��LQ�WKH�DQQXDO�SHULRGV�VXUURXQGLQJ�WKHDJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW�DUH�FRPSXWHG��ZLWK�W�� ��������7KHVH�UDWLQJ�PLJUDWLRQ�ILJXUHVDUH�VXEVHTXHQWO\�DYHUDJHG�RYHU�WKH�VDPSOH�SHULRG�7�� ��������������UHVXOWLQJ�LQ�û5W���W��7KHFXPXODWLYH�UDWLQJ�FKDQJH�û5&W VLQFH�W� ����HTXDOV�

¦� �' ' WN NNW& L5L5 � ������ �����

ZKHUH�L�UHIHUV�WR�WKH�WKUHH�VDPSOHV��FRQGLWLRQDO�RQ�DQ�DJHQF\�UDWLQJ�PLJUDWLRQ�LQ�SHULRG��������³�´�UHIHUV�WR�DQ�XSJUDGH��³�´�UHIHUV�WR�QR�PLJUDWLRQ��DQG�³�´�UHIHUV�WR�D�GRZQJUDGH��7KH�û5&ILJXUHV�DUH�FRPSXWHG�IRU�DJHQF\�UDWLQJV��û1&���$5�UDWLQJV��û$5&���/'3�UDWLQJV��û/'3&��DQG�'3�UDWLQJV��û'3&���DOO�RI�ZKLFK�DUH�FRQGLWLRQDO�RQ�DQ�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW�7KH�FXPXODWLYH�UDWLQJ�FKDQJHV�û5&����DQG�û5&����DUH�VXEVHTXHQWO\�VXEWUDFWHG�E\�û5&����DQGVFDOHG�E\�D�IDFWRU���N5�

W&5

W&W& 555 ������� �'o'��' N �����W&

5W&W& 555 ������� �'o'��' N �����

7KLV�FRQYHUVLRQ�RI�û5&����DQG�û5&����LV�PRWLYDWHG�DV�IROORZV��� 7KH�GLIIHUHQFH�EHWZHHQ�û5&����û5&����DQG�û5&����MXVW�EHIRUH�WKH�DJHQF\�UDWLQJPLJUDWLRQ�LV�D�PHDVXUH�IRU�WKH�WLPHOLQHVV�RI�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ��7KH�VXEWUDFWLRQRI�û5&����FRQWUROV�IRU�WKH�GRZQZDUG�UDWLQJ�WUHQG�DQG�SRWHQWLDO�ELDV�GXH�WR�PLVVLQJREVHUYDWLRQV��'XH�WR�GHIDXOWV��PHUJHUV��GH�OLVWLQJV��HW�FHWHUD��WKH�FRPSRVLWLRQ�RI�WKH�WKUHHFRQGLWLRQDO�VDPSOHV�YDULHV�IRU�W�� ��������)RU�H[DPSOH��ILUPV�GHIDXOWLQJ�LQ�WKH�SHULRG��������DUH�PLVVLQJ�LQ�WKH�PHDQ�FDOFXODWLRQV�RI�û5�����û5�����û5�����DQG�û5�����DOO�RI�ZKLFKLQFOXGH�WKH�UHODWLYHO\�ORQJHU�VXUYLYLQJ��KHDOWKLHU�ILUPV��� 7KH�VFDOLQJ�IDFWRU���N5 DOORZV�D�FRPSDULVRQ�RI�û1&��û$5&��DQGû'3&�LQ�WHUPV�RI�DJHQF\�UDWLQJ�QRWFK�VWHSV��%HFDXVH�RI�WKH�GLVDJUHHPHQW�EHWZHHQ�DJHQF\�UDWLQJV��1��DQG�&0

Page 19: Altman Rijken (2004) (Ratings Stability)

��

UDWLQJV��&0��WKH�VORSH�N5 LQ�WKH�UHJUHVVLRQ�HTXDWLRQ��&0� �N51���FRQVWDQW��GRHV�QRWHTXDO����,Q�RUGHU�WR�FRPSDUH�WKH�û&0& ILJXUHV�FRUUHFWO\�ZLWK�û1& ILJXUHV��LQ�WHUPV�RIDJHQF\�UDWLQJ�QRWFK�VWHSV��WKH�û&0& ILJXUHV�DUH�VFDOHG�E\�N5 ��WKH�VORSH�LQ�WKH�UHJUHVVLRQHTXDWLRQ��&0� �N51���FRQVWDQW��)RU�$5�UDWLQJV��/'3�UDWLQJV��DQG�'3�UDWLQJV�N5 HTXDOV�����������DQG�������UHVSHFWLYHO\�)LJXUH�,,,�SUHVHQWV�WKH�WLPH�VHULHV�RI�FXPXODWLYH�UDWLQJ�FKDQJHV�û5&W����DQG�û5&W����&RQGLWLRQDO�RQ�DQ�DJHQF\�UDWLQJ�GRZQJUDGH��WKH�WRWDO�FXPXODWLYH�UDWLQJ�FKDQJH�û5&�����LV�����QRWFK�VWHSV��-XVW�EHIRUH�WKH�GRZQJUDGH�±�DW�W� ����±��û$5&������SUHGLFWV�D�GHFUHDVH�E\����QRWFK�VWHSV��ZKLOH�û1&������HTXDOV������QRWFK�VWHSV��6LPLODU��EXW�LQ�DEVROXWH�WHUPV�VOLJKWO\ORZHU�QXPEHUV�DUH�IRXQG�IRU�DQ�DJHQF\�UDWLQJ�XSJUDGH��û5&�����HTXDOV������QRWFK�VWHSV�û$5&������HTXDOV�����QRWFK�VWHSV�DQG�û1&������HTXDOV������QRWFK�VWHSV��2Q�DYHUDJH� &0�UDWLQJ�FKDQJHV�FOHDUO\�DQWLFLSDWH�DJHQF\�UDWLQJ�PLJUDWLRQV��$PRQJ�&0UDWLQJV��WKH�'3�UDWLQJV�SURYLGH�WKH�VWURQJHVW�DQWLFLSDWLRQ�RI�DQ�DSSURDFKLQJ�DJHQF\�UDWLQJPLJUDWLRQ�HYHQW��,Q�WKH�WZR�\HDU�SHULRG�VXUURXQGLQJ�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�GDWH��û'3&DQG��WR�D�OHVVHU�H[WHQW��û/'3& VKRZ�VRPH�³RYHUVKRRWLQJ´�EHKDYLRU��VHH�)LJXUH�,,,���� -XVWDIWHU�WKH�DJHQF\�PLJUDWLRQ�GDWH��û'3& FOHDUO\�H[FHHGV�WKH�SHUPDQHQW�FRPSRQHQW�LQ�WKH�FUHGLW�TXDOLW\�FKDQJH��DV�SUR[LHG�E\�û$5& DW�W� ���DQG�UHIOHFWHG�E\�û1&�DW�W� ����7KLV�RYHUVKRRWLQJEHKDYLRU�VXJJHVWV�WKDW�'3�VFRUHV�DUH�KLJKO\�VHQVLWLYH�WR�WKH�WHPSRUDU\�FRPSRQHQW�LQ�FUHGLW�TXDOLW\�FKDQJHV��DQG�WKDW�/'3�VFRUHV�DUH�PRGHUDWHO\�VHQVLWLYH��7KH�DEVHQFH�RI�RYHUVKRRWLQJEHKDYLRU�IRU�$5�UDWLQJV�LPSOLHV�WKDW�$5�VFRUHV�DUH�IDU�OHVV�VHQVLWLYH�WR�VKRUW�WHUP�IOXFWXDWLRQVLQ�FUHGLW�TXDOLW\��)URP�WKLV�HPSLULFDO�ILQGLQJ��ZH�DVFULEH�WKH�GLIIHUHQFHV�EHWZHHQ�û$5& DQGû1& WR�WKH�PLJUDWLRQ�SROLF\�DVSHFW�RI�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�,I�LQYHVWRUV�PRQLWRU�FKDQJHV�LQ�FUHGLW�TXDOLW\�EDVHG�RQ�WKH�SRLQW�LQ�WLPH��/�'3�PRGHO��WKH\PD\�EH�GLVVDWLVILHG�ZLWK�WKH�WLPHOLQHVV�RI�DJHQF\�UDWLQJV�IRU�WZR�UHDVRQV��� 0LJUDWLRQ�SROLF\�PDVNV�WKH�WUXH�G\QDPLFV�RI�FUHGLW�TXDOLW\��$JHQF\�UDWLQJV�GR�QRWUHVSRQG�LPPHGLDWHO\�WR�FKDQJHV�LQ�SRLQW�LQ�WLPH�FUHGLW�TXDOLW\��� ,I�WKH�GHIDXOW�KRUL]RQV�RI�WKH�LQYHVWRUV�DUH�VKRUW��WKH\�ZLOO�DOVR�EH�VHQVLWLYH�WR�WHPSRUDU\FKDQJHV�LQ�FUHGLW�TXDOLW\�7KH�UHVXOWV�DQG�FRQFOXVLRQV�SUHVHQWHG�DERYH�DUH�UREXVW�ZLWK�UHJDUG�WR�UDWLQJ�OHYHO�DQG�VDPSOHSHULRG��� 2QO\�VRPH�PRGHVW�GLIIHUHQFHV�DSSHDU�EHWZHHQ�LQYHVWPHQW�JUDGH�ILUPV�DQG�QRQ�LQYHVWPHQW�JUDGH�ILUPV��7KH�UREXVWQHVV�RI�WKH�FRQFOXVLRQV�KDV�WZR�LPSRUWDQW�LPSOLFDWLRQV�)LUVW��QR�PDMRU�GLIIHUHQFHV�LQ�PLJUDWLRQ�SROLF\�DSSHDU�EHWZHHQ�WKH�KLJK�DQG�ORZ�FUHGLW�TXDOLW\UDQJH��DQG�QR�PDMRU�FKDQJH�LQ�PLJUDWLRQ�SROLF\�VKRZV�XS�EHWZHHQ�WKH�VDPSOH�SHULRGV������±�����DQG������±�������6HFRQG��&0�VFRUHV�DUH�MXVW�DV�HIIHFWLYH�LQ�GHWHFWLQJ�FUHGLW�TXDOLW\FKDQJHV�LQ�WKH�KLJK�FUHGLW�TXDOLW\�UDQJH�DV�WKH\�DUH�LQ�WKH�ORZ�FUHGLW�TXDOLW\�UDQJH�

Page 20: Altman Rijken (2004) (Ratings Stability)

��

9�&KDUDFWHUL]DWLRQ�RI�PLJUDWLRQ�SROLF\�����0LJUDWLRQ�SROLF\�SDUDPHWHUV'LIIHUHQFHV�EHWZHHQ�WKH�G\QDPLFV�RI�$5�UDWLQJV�DQG�DFWXDO�DJHQF\�UDWLQJV�DUH�DVFULEHG�WRDJHQFLHV�PLJUDWLRQ�SROLFLHV��VHH�6HFWLRQ�������,Q�RUGHU�WR�XQGHUVWDQG�WKH�LPSDFW�RI�PLJUDWLRQSROLF\�RQ�UDWLQJ�G\QDPLFV��ZH�SURSRVH�D�VLPSOH�PRGHO�UHSUHVHQWLQJ�WKH�PLJUDWLRQ�SROLFLHV�RIDJHQFLHV��,Q�WKLV�PRGHO��PLJUDWLRQ�SROLF\�LV�FKDUDFWHUL]HG�E\�WZR�PLJUDWLRQ�SROLF\�SDUDPHWHUV�x 7KH�WKUHVKROG�SDUDPHWHU�7+�VSHFLILHV�WKH�VL]H�RI�D�FUHGLW�TXDOLW\�LQWHUYDO�>�7+�7+@��LQZKLFK�FUHGLW�TXDOLW\�LV�DOORZHG�WR�IOXFWXDWH�ZLWKRXW�WULJJHULQJ�D�UDWLQJ�PLJUDWLRQ��� 7KLVWKUHVKROG�SUHYHQWV�VPDOO�FUHGLW�TXDOLW\�IOXFWXDWLRQV�IURP�WULJJHULQJ�D�UDWLQJ�PLJUDWLRQWKHUHE\�UHGXFLQJ�WKH�SUREDELOLW\�RI��UDWLQJ�PLJUDWLRQ�x ,Q�FDVH�D�UDWLQJ�PLJUDWLRQ�LV�WULJJHUHG��WKH�UDWLQJV�DUH�QRW�IXOO\�DGMXVWHG�WR�WKH�FXUUHQWFUHGLW�TXDOLW\�OHYHO��7KH�DGMXVWPHQW�IUDFWLRQ�$)�VSHFLILHV�WKH�SDUWLDO�DGMXVWPHQW�RI�DJHQF\UDWLQJV��7KH�SDUWLDO�DGMXVWPHQW�RI�DJHQF\�UDWLQJV��L�H���WKH�VSUHDGLQJ�RI�WKH�WDUJHW�UDWLQJDGMXVWPHQW�RYHU�WLPH��LV�UHVSRQVLEOH�IRU�WKH�REVHUYHG�GULIW�LQ�DJHQF\�UDWLQJV�7KH�WKUHVKROG�OHYHO�7+�FDQ�EH�HVWLPDWHG�IURP�WKH�WLPH�VHULHV�RI�û$5& �VHH�)LJXUH�,,,���7KHû$5&�OHYHO�DW�ZKLFK�D�UDWLQJ�PLJUDWLRQ�LV�WULJJHUHG�LV�DERXW���QRWFK�VWHS�IRU�DQ�XSJUDGH�DQGDERXW�������QRWFK�VWHSV�IRU�D�GRZQJUDGH��DQ�DJHQF\�UDWLQJ�PLJUDWLRQ�RFFXUV�RQ�DYHUDJH�DW�W �������7KH�WKUHVKROG�OHYHO�7+�LV�WKHUHIRUH�OLNHO\�WR�EH�DERXW����������QRWFK�VWHSV��$�EHVW�JXHVVIRU�WKH�DGMXVWPHQW�IUDFWLRQ�$)�FDQ�EH�PDGH�DV�IROORZV��,I�DJHQFLHV�GR�QRW�VSUHDG�WKH�LQWHQGHGUDWLQJ�DGMXVWPHQWV�RYHU�PRUH�\HDUV��WKH�DYHUDJH�UDWLQJ�PLJUDWLRQ�LQ�WKH�SHULRGV���������DQG�������VXUURXQGLQJ�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW�LV�H[SHFWHG�WR�EH�FORVH�WR�]HUR��JLYHQ�WKHXQSUHGLFWDELOLW\�RI�WKH�$5�UDWLQJ��VHH�6HFWLRQ�������+RZHYHU�LW�VHHPV�WKDW�DJHQFLHV�GR�VSUHDGUDWLQJ�DGMXVWPHQWV�RYHU�WLPH��7KH�WRWDO�DJHQF\�UDWLQJ�PLJUDWLRQ�'1&���FRQGLWLRQDO�RQ�DGRZQJUDGH�DQG�DQ�XSJUDGH�LQ�DQQXDO�SHULRG���������HTXDOV�������DQG�����QRWFK�VWHSV�UHVSHFWLYHO\��2Q�DYHUDJH��WZR�WKLUGV�RI�WKLV�WRWDO�PLJUDWLRQ�'1&� RFFXUV�LQ�SHULRG���������7KHRWKHU�SDUW�RFFXUV�LQ�WKH�DQQXDO�SHULRGV�VXUURXQGLQJ���������:KHQ�WULJJHUHG��UDWLQJV�DSSHDU��RQDYHUDJH��DGMXVWHG�RQO\�E\�D�IUDFWLRQ�������RI�WKH�WDUJHW�UDWLQJ�OHYHO��7KH�UHPDLQGHU�RI�WKHLQWHQGHG�UDWLQJ�DGMXVWPHQW�LV�H[HFXWHG�RQ�D�ODWHU�GDWH�����6LPXODWLRQ�RI�DJHQF\�UDWLQJ�G\QDPLFV$�VLPXODWLRQ�H[SHULPHQW�LV�FRQGXFWHG�DV�DQ�DOWHUQDWLYH�ZD\�RI�HVWLPDWLQJ�WKH�WZR�PLJUDWLRQSROLF\�SDUDPHWHUV�7+�DQG�$)��7KH�VLPXODWLRQ�H[SHULPHQW�LQYROYHV�WKUHH�VWHSV��,Q�WKH�ILUVWVWHS��$5�VFRUHV�DUH�PRGLILHG�WR�$50 VFRUHV��UHIOHFWLQJ�D�SDUWLFXODU�PLJUDWLRQ�SROLF\��,Q�WKHVHFRQG�VWHS��WKH�$50 VFRUHV�DUH�FRQYHUWHG�WR�$5�7+�$)��UDWLQJV��,Q�WKH�WKLUG�VWHS��WKHPLJUDWLRQ�SROLF\�SDUDPHWHUV�7+�DQG�$)�DUH�GHWHUPLQHG�E\�VHDUFKLQJ�IRU�PDWFKHV�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQV�DQG�UDWLQJ�GULIW�SURSHUWLHV�EHWZHHQ�DJHQF\�UDWLQJV�DQG�$5�7+�$)�UDWLQJV�

Page 21: Altman Rijken (2004) (Ratings Stability)

��

6WHS����0RGLILFDWLRQ�RI�$5�VFRUHV)RU�HDFK�REVHUYDWLRQ��WKH�$5�VFRUH�LV�FRQYHUWHG�WR�D�PRGLILHG�VFRUH�$50 LQ�VXFK�D�ZD\�WKDW�LWUHIOHFWV�D�VSHFLILF�PLJUDWLRQ�SROLF\��FKDUDFWHUL]HG�E\�D�WKUHVKROG�7+�DQG�DQ�DGMXVWPHQWIUDFWLRQ�$)��:KHQ�IROORZLQJ�WKH�WLPH�VHULHV�RI�WKH�$5W VFRUHV�IRU�D�SDUWLFXODU�ILUP��WKHPRGLILHG�$50W VFRUHV�DUH�FRPSXWHG��$W�WKH�EHJLQQLQJ�RI�WKH�WLPH�VHULHV�RI�HDFK�ILUP��$50� LVVHW�HTXDO�WR�$5���7KH�$50W VFRUH�LV�KHOG�FRQVWDQW�DV�ORQJ�DV�WKH�$5W VFRUH�VWD\V�ZLWKLQ�WKHWKUHVKROG�LQWHUYDO��$50W�����Ju7+��$50W�����Ju7+��

7+$5$5LI$5$5 W0WW0W0 �� �� J �� � �����ZKHUH�W�� ���WPD[��DQG�WPD[ LV�WKH�SHULRG�RI�XQEURNHQ�VWD\�RI�D�SDUWLFXODU�ILUP�LQ�WKH�GDWDVHW��7+LV�H[SUHVVHG�LQ�QRWFK�VWHSV��J FRQYHUWV�WKH�$5�VFRUH�WR�D�QRWFK�VFDOH��VHH�6HFWLRQ�������$V�VRRQDV�WKH�$5W VFRUH�H[FHHGV�WKH�WKUHVKROG�LQWHUYDO��WKH�$50W VFRUH�LV�DGMXVWHG��,I�$)� ����WKH$50W VFRUH�LV�IXOO\�DGMXVWHG�WR�WKH�FXUUHQW�$5�VFRUH��,I�$)������WKH�$50W VFRUH�LV�SDUWLDOO\DGMXVWHG�WR�WKH�FXUUHQW�$5�VFRUH�DV�IROORZV�

7+$5$5LI$5$5$5$)$5 W0WW0W0WW0 t���u ��� J ��� �� �����6WHS����&RQYHUVLRQ�RI�$50 VFRUHV�WR�$5�7+�$)��UDWLQJV$50 VFRUHV�DUH�FRQYHUWHG�WR�$5�7+�$)��UDWLQJV��HTXLYDOHQW�WR�DJHQF\�UDWLQJV��E\�IROORZLQJWKH�SURFHGXUH�DV�GHVFULEHG�LQ�6HFWLRQ������7KH�WLPH�VHULHV�RI�$50 VFRUHV�LV�DQ�LUUHJXODUSDWWHUQ�RI�XSZDUG�DQG�GRZQZDUG�MXPSV��7KH�WLPH�SHULRG�EHWZHHQ�WKHVH�MXPSV�YDULHV�EHWZHHQ��DQG�WPD[ \HDUV��$Q�XQDPELJXRXV�FRQYHUVLRQ�RI�WKHVH�MXPSV�WR�$5�7+�$)��UDWLQJ�PLJUDWLRQVLV�FUXFLDO�WR�WKH�VLPXODWLRQ�H[SHULPHQW��7KLV�XQDPELJXRXV�FRQYHUVLRQ�LV�FKHFNHG�DQGVDIHJXDUGHG�DV�IROORZV�x 7KH�PLQLPXP�VL]H�RI�WKH�MXPS�LQ�$50 VFRUHV�LV�Ju$)u7+��ZKLFK�LV�VXIILFLHQW�WR�FRQYHUWQHDUO\�DOO�MXPSV�LQ�WKH�PRGLILHG�$50 VFRUH�WR�$5�7+�$)��UDWLQJ�PLJUDWLRQV�x 7KH�FRQYHUVLRQ�SURFHGXUH��KRZHYHU��GRHV�QRW�SUHYHQW�DQ�$5�7+�$)���UDWLQJ�PLJUDWLRQ�WRKDSSHQ��ZKHQ�QR�MXPS�RFFXUV�LQ�WKH�$50 VFRUH��7R�SUHYHQW�WKHVH�QRQ�LQWHQGHGPLJUDWLRQV��$5�7+�$)��UDWLQJV�DUH�UHSODFHG�E\�ODJJHG�UDWLQJV��ZKHQ�$50W HTXDOV�WKHRQH�\HDU�ODJJHG�YDOXH�$50W����$V�D�FRQVHTXHQFH��WKH�GLVWULEXWLRQ�RI�WKH�$5�7+�$)�UDWLQJV�LV�VOLJKWO\�DOWHUHG��7KH�QXPEHU�RI�REVHUYDWLRQV�LQ�HDFK�UDWLQJ�FODVV��EHIRUH�DQGDIWHU�WKLV�FRUUHFWLRQ��GLIIHU�E\�����DW�PRVW��7KLV�FKDQJH�LQ�UDWLQJ�GLVWULEXWLRQ�GRHV�QRWVHULRXVO\�DIIHFW�WKH�FRPSDUDELOLW\�RI�WKH�$5�7+�$)��UDWLQJV�ZLWK�DJHQF\�UDWLQJV�

Page 22: Altman Rijken (2004) (Ratings Stability)

��

6WHS����'HWHUPLQDWLRQ�RI�PLJUDWLRQ�SROLF\�SDUDPHWHUV)RU�D�UDQJH�RI�7+�DQG�$)�SDUDPHWHUV�WKH�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQV�DQG�UDWLQJ�GULIWSURSHUWLHV�RI�$5�7+�$)��UDWLQJV�DUH�GHWHUPLQHG��7DEOH�9,,�SUHVHQWV�WKH�UDWLQJ�PLJUDWLRQGLVWULEXWLRQV�DQG�UDWLQJ�GULIW�SURSHUWLHV�IRU�DJHQF\�UDWLQJV�DQG�D�YDULHW\�RI�$5�7+�$)�UDWLQJV��7KH�7+�DQG�$)�SDUDPHWHUV�ZKLFK�FRUUHVSRQG�PRVW�FORVH�WR�WKH�DFWXDO�PLJUDWLRQSROLF\�RI�DJHQFLHV�LV�IRXQG�E\�VHDUFKLQJ�IRU�D�EHVW�PDWFK�LQ�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQV�DQGUDWLQJ�GULIW�SURSHUWLHV�EHWZHHQ�DJHQF\�UDWLQJV�DQG�$5�7+�$)��UDWLQJV��,Q�WKLV�DQDO\VLV�WKHPLJUDWLRQV�WR�GHIDXOW�DUH�H[FOXGHG�IURP�WKH�VLPXODWLRQ�H[SHULPHQW��DV�WKHVH�PLJUDWLRQV�DUHREYLRXVO\�QRW�LQLWLDWHG�E\�DJHQFLHV�$�YDULDWLRQ�RI�WKH�WKUHVKROG�7+�VKRZV�WKDW�D�WKUHVKROG�RI������QRWFK�VWHSV�SURYLGHV�WKH�EHVWPDWFK�IRU�WKH�UDWLQJ�PLJUDWLRQ�SUREDELOLWLHV�RI�DJHQF\�UDWLQJV�DQG�$5�7+�$)��UDWLQJV��7KHUDWLQJ�PLJUDWLRQ�SUREDELOLW\�DSSHDUV�WR�EH�LQVHQVLWLYH��DW�OHDVW�QRW�VLJQLILFDQWO\�VHQVLWLYH��WRWKH�DGMXVWPHQW�IUDFWLRQ�$)��7KH�WZR�PLJUDWLRQ�SROLF\�SDUDPHWHUV�LQIOXHQFH�WKH�UDWLQJG\QDPLFV�GLIIHUHQWO\�DQG�QHDUO\�LQGHSHQGHQWO\�IURP�HDFK�RWKHU��WKH�WKUHVKROG�OHYHOGHWHUPLQHV�WKH�UDWLQJ�PLJUDWLRQ�SUREDELOLW\��WKH�DGMXVWPHQW�IUDFWLRQ�GHWHUPLQHV�WKH�VWUHQJWK�RIWKH�UDWLQJ�GULIW�DQG�WKH�GLVWULEXWLRQ�LQ�UDWLQJ�PLJUDWLRQ�VWHSV�,Q�FDVH�RI�D�IXOO�UDWLQJ�DGMXVWPHQW��$)� �����QR�VLJQLILFDQW�UDWLQJ�GULIW�LV�REVHUYHG��UHJDUGOHVVRI�WKUHVKROG�OHYHO��� )RU�$5�UDWLQJV��±�VSHFLILFDOO\�$5�UDWLQJV�DQG�$5���������UDWLQJV�±�QRVLJQLILFDQW�SRVLWLYH�UHODWLRQVKLS�VKRZV�XS�EHWZHHQ�'5�DQG�'5W����� ,Q�D�IXUWKHU�UHILQHPHQW�RIWKH�VLPXODWLRQ�H[SHULPHQW��WKH�DGMXVWPHQW�IUDFWLRQ�$)�LV�YDULHG�LQ�EHWZHHQ�����DQG����$VH[SHFWHG��WKH�UDWLQJ�GULIW�DSSHDUV�DV�VRRQ�DV�UDWLQJV�DUH�SDUWO\�DGMXVWHG��DQG�WKH�PDJQLWXGH�RIWKH�UDWLQJ�GULIW�LQFUHDVHV�ZLWK�ORZHU�DGMXVWPHQW�IDFWRUV��7KH�EHVW�PDWFK�LQ�UDWLQJ�GULIWSURSHUWLHV�ZLWK�DJHQF\�UDWLQJV�LV�REWDLQHG�IRU�$5������������UDWLQJV�DQG�$5�����������UDWLQJV��:H�FRQFOXGH�WKDW��RQ�DYHUDJH��DJHQFLHV�DSSO\�D�WKUHVKROG�RI������DQG�SDUWLDOO\�DGMXVWWKHLU�UDWLQJV�E\�D�IDFWRU�RI�DERXW�������7KHVH�PLJUDWLRQ�SROLF\�SDUDPHWHUV�DUH�QRW�H[WUHPH�WKH\�SRLQW�WRZDUGV�D�UHDVRQDEOH�SUXGHQW�PLJUDWLRQ�SROLF\��1RWLFH�WKDW�WKH������QRWFK�VWHSWKUHVKROG�OHYHO�LV�D�PLQLPXP�HVWLPDWH��,Q�WKH�VLPXODWLRQ�H[SHULPHQW��WKH�UDWLQJ�PLJUDWLRQWULJJHU�LV�VHW��RQ�DYHUDJH������\HDU�EHIRUH�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW��7KH�DFWXDOWKUHVKROG�OHYHO�DSSOLHG�E\�WKH�DJHQFLHV�MXVW�EHIRUH�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW�LV�OLNHO\WR�EH�VRPHZKDW�KLJKHU�7DEOH�9,,,�FRPSDUHV�WKH�RQH�\HDU�UDWLQJ�PLJUDWLRQ�PDWULFHV�RI�DJHQF\�UDWLQJV�DQG�$5������������UDWLQJV�RQ�D�PDMRU�UDWLQJ�OHYHO��� 7KH�DJHQF\�UDWLQJ�G\QDPLFV�DUH�DOPRVW�SHUIHFWO\VLPXODWHG�E\�$5�������������UDWLQJV��7KH�UDWLQJ�PLJUDWLRQ�SUREDELOLWLHV�DJUHH�ZLWKLQ����DSDUW�IURP�WKH�&&&�&&�UDWLQJ�FODVV�

Page 23: Altman Rijken (2004) (Ratings Stability)

��

9,�'LVFXVVLRQ��LQ�VHDUFK�IRU�WKH�³WUXH´�FUHGLW�ULVN�PLJUDWLRQ�PDWUL[$�NH\�LQSXW�IRU�PDQ\�FUHGLW�ULVN�SULFLQJ�PRGHOV�LV�WKH�FUHGLW�ULVN�PLJUDWLRQ�PDWUL[��ZKLFKVXPPDUL]HV�LQIRUPDWLRQ�RQ�FUHGLW�TXDOLW\�G\QDPLFV��,Q�JHQHUDO��ZKHQ�XVLQJ�WKH�DJHQF\�UDWLQJPLJUDWLRQ�PDWUL[�DV�D�SUR[\�IRU�WKH�FUHGLW�ULVN�PLJUDWLRQ�PDWUL[��WKH�FRUSRUDWH�ERQG�VSUHDGVSUHGLFWHG�E\�WKHVH�PRGHOV�DUH�WRR�ORZ��(OWRQ�DQG�FROOHDJXHV��������VXJJHVW�WKDW�D�KLJKHUH[SHFWHG�GHIDXOW�UDWH��FRPSHQVDWLRQ�IRU�GHIDXOW�ORVV���D�KLJKHU�YDULDWLRQ�LQ�WKH�XQH[SHFWHGGHIDXOW�UDWH��FUHGLW�ULVN�SUHPLXP���RU�D�FRPELQDWLRQ�RI�ERWK�VKRXOG�DFFRXQW�IRU�D�UHODWLYHO\ODUJH�SDUW�RI�WKH�FUHGLW�ULVN�VSUHDG��7KH�YRODWLOLW\�LQ�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�PDWUL[�LV�WRRORZ�WR�H[SODLQ�D�VXEVWDQWLDO�SDUW�RI�WKH�FUHGLW�VSUHDGV�IRU�FRUSRUDWH�ERQGV�8S�WR�WKLV�SRLQW��WKH�DFDGHPLF�OLWHUDWXUH�RQ�DJHQF\�UDWLQJ�PLJUDWLRQ�PDWULFHV�KDV�IRFXVHGSULPDULO\�RQ�WKH�LQIOXHQFH�RI�WKH�EXVLQHVV�F\FOH��ERQG�UDWLQJ�DJH��DQG�LQGXVWU\��VHH�$OWPDQ�������1LFNHOO�HW�DO���������+X�HW�DO���������DQG�%DQJLD�HW�DO����������7KLV�SDSHU�DLPV�WR�GUDZDWWHQWLRQ�WR�WKH�YRODWLOLW\�RI�WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�PDWUL[��$V�VKRZQ�LQ�SUHYLRXVFKDSWHUV��WKH�VWDELOLW\�RI�DJHQF\�UDWLQJV�LV�VLJQLILFDQWO\�HQKDQFHG�E\�DJHQF\�PLJUDWLRQ�SROLFLHVDQG�ORQJ�WHUP�GHIDXOW�KRUL]RQV��:KHQ�WKH�PLJUDWLRQ�SROLF\�SDUDPHWHUV�DUH�NQRZQ�DQG�ZKHQZH�DUH�DEOH�WR�VLPXODWH�WKH�DJHQF\�UDWLQJ�G\QDPLFV��LW�WKHQ�EHFRPHV�SRVVLEOH�WR�UHYHDO�ZKDWWKH�DJHQF\�UDWLQJ�PLJUDWLRQ�PDWUL[�ZRXOG�ORRN�OLNH�LI�DJHQFLHV�ZHUH�WR�UHOD[�WKHLU�SUXGHQWPLJUDWLRQ�SROLFLHV�DQG�LI�WKH\�ZHUH�WR�IRFXV�RQ�D�RQH�\HDU��LQVWHDG�RI�D�ORQJHU�WHUP��KRUL]RQ�7DEOH�9,,,�SUHVHQWV�WKH�RQH�\HDU�UDWLQJ�PLJUDWLRQ�PDWULFHV�7�1W�1W����IRU�DJHQF\�UDWLQJV�$5������������UDWLQJV��$5�UDWLQJV��DQG�'3�UDWLQJV�RQ�D�PDMRU�UDWLQJ�OHYHO��$5�UDWLQJV�DUHXVHG�WR�LOOXVWUDWH�WKH�LQIOXHQFH�RI�DJHQF\�PLJUDWLRQ�SROLFLHV��(OLPLQDWLQJ�WKH�LPSDFW�RI�WKHPLJUDWLRQ�SROLF\��DV�UHIOHFWHG�E\�$5�UDWLQJV��ZRXOG�LQFUHDVH�WKH�DJHQF\�UDWLQJ�PLJUDWLRQSUREDELOLWLHV�E\�D�IDFWRU�RI����6ZLWFKLQJ�WR�/'3�UDWLQJV�VOLJKWO\�LQFUHDVHV�WKLV�IDFWRU�IXUWKHU�WR�ò��7KH�PDLQ�FRQWULEXWLRQ�WR�DJHQF\�UDWLQJ�VWDELOLW\��IURP�DQ�LQYHVWRUV�SHUVSHFWLYH��DSSHDUVWR�EH�D SUXGHQW�PLJUDWLRQ�SROLF\�RQ�WKH�SDUW�RI�UDWLQJ�DJHQFLHV��,I�WKH�LQYHVWRU�LV�LQWHUHVWHGRQO\�LQ�RQH�\HDU�GHIDXOW�SUREDELOLWLHV��KRZHYHU��WKH�DJHQF\�UDWLQJ�PLJUDWLRQ�SUREDELOLW\�LV�WRRORZ�E\�D�IDFWRU�RI������)URP�WKLV�VKRUW�WHUP�SHUVSHFWLYH��WKH�WZR�FRPSRQHQWV�RI�WKH�WKURXJK�WKH�F\FOH�DSSURDFK�±�SUXGHQW�PLJUDWLRQ�SROLF\�DQG�ORQJ�WHUP�GHIDXOW�KRUL]RQ�±�FRQWULEXWHHTXDOO\�WR�WKH�VWDELOLW\�RI�DJHQF\�UDWLQJV�:H�EHOLHYH�WKDW�D�UDWLQJ�PLJUDWLRQ�PDWUL[��EDVHG�RQ�D�GHIDXOW�SUHGLFWLRQ�PRGHO�ZLWK�D�VL[�\HDUKRUL]RQ��LV�D�JRRG�SUR[\�IRU�WKH�WUXH�UDWLQJ�PLJUDWLRQ�PDWUL[��,Q�WKLV�VHWWLQJ��³WUXH´�UHIHUV�WRWKH�LQYHVWRUV�SRLQW�LQ�WLPH�SHUVSHFWLYH�ZLWK�QR�GHVLUH�IRU�UDWLQJ�VWDELOLW\��$OWHUQDWLYH�UDWLQJ�PLJUDWLRQ�PDWULFHV�ZHUH�SURSRVHG�E\�.HDOKRIHU�DQG�FROOHDJXHV��������DQG�&DUH\�DQG�+U\FD\��������EDVHG�RQ�(')�VFRUHV��.09�PRGHO��DQG�VROH�DFFRXQWLQJ�LQIRUPDWLRQ��UHVSHFWLYHO\�7KH�UDWLQJ�PLJUDWLRQ�SUREDELOLWLHV�DUH�KLJKHU�WKDQ�RXU�SURSRVDO�E\�D�IDFWRU�RI�����±�� IRU�D�WUXHUDWLQJ�PLJUDWLRQ�PDWUL[��8OWLPDWHO\��D�GHIDXOW�SUHGLFWLRQ�PRGHO�ZLWK�WKH�EHVW�GHIDXOW�SUHGLFWLRQ�SHUIRUPDQFH�LQ�UHFHQW�KLVWRU\�DQG�HVWLPDWHG�ZLWK�WKH�DSSURSULDWH�LQYHVWRUV�WLPHKRUL]RQ�JLYHV�WKH�EHVW�HVWLPDWH�RI�WKH�WUXH�UDWLQJ�PLJUDWLRQ�PDWUL[��7KH�H[WHQW�WR�ZKLFK�DPRUH�YRODWLOH�PLJUDWLRQ�PDWUL[�DOWHUV�WKH�RXWFRPH�RI�UDWLQJ�EDVHG�FUHGLW�SULFLQJ�PRGHOV�LV�DQLQWHUHVWLQJ�WRSLF�IRU�IROORZ�XS�UHVHDUFK�

Page 24: Altman Rijken (2004) (Ratings Stability)

��

7KH�G\QDPLF�SURSHUWLHV�RI�WKH�RQH�\HDU�UDWLQJ�PLJUDWLRQ�PDWUL[�DUH�DQDO\]HG�LQ�JUHDWHU�GHWDLOSHU�UDWLQJ�FODVV��7KH�DYHUDJH�UDWLQJ�PLJUDWLRQ�û5�1��ZLWKLQ�RQH�\HDU�HTXDOV�¦ � ' �

� ������� N 1NN1715 �����ZKHUH�7�1W�1W����DUH�WKH�HOHPHQWV�RI�WKH�RQH�\HDU�UDWLQJ�PLJUDWLRQ�PDWULFHV��7KH�UDWLQJ�PLJUDWLRQ�SUREDELOLW\�3�1��HTXDOV�

1NN1713 N z ¦ �� ����� �����û5�1��DQG�3�1��DUH�JLYHQ�LQ�7DEOH�,;��,Q�RUGHU�WR�KLJKOLJKW�WKH�UDWLQJ�UHYHUVLRQ�UDWHV��GHIDXOWPLJUDWLRQV�DUH�H[FOXGHG�IURP�WKH�DQDO\VLV��WKH�GHIDXOW�PLJUDWLRQ�WULJJHU�LV�DVVXPHG�WR�IROORZD�FRPSOHWHO\�GLIIHUHQW�VWRFKDVWLF�SURFHVV���,Q�WKH�DEVHQFH�RI�GHIDXOW�PLJUDWLRQ�HYHQWV��UDWLQJVWHQG�WR�PLJUDWH�WRZDUGV�D�PHDQ�LQYHVWPHQW�JUDGH��VHH�DOVR�$OWPDQ���������3DUW�RI�WKLV�UDWLQJ�UHYHUWLQJ�EHKDYLRU�FRXOG�EH�DVFULEHG�WR�WKH�UHVWULFWHG�QXPEHU�RI�SRVVLEOH�XSJUDGHV�DQGGRZQJUDGHV��HVSHFLDOO\�IRU�WKH�KLJKHVW�DQG�ORZHVW�UDWLQJ�FODVVHV��$QRWKHU�SDUW�RI�WKH�UHYHUWLQJEHKDYLRU�LV�PRUH�IXQGDPHQWDO��&RUSRUDWH�FUHGLW�TXDOLW\��DV�PHDVXUHG�E\�WKH�&0�VFRUH��WHQGVWR�UHYHUW�WRZDUG�PHDQ�FUHGLW�TXDOLW\�YDOXHV��ZLWK�D�PHDQ�UHYHUVLRQ�UDWH�GHSHQGLQJ�RQ�WKHFXUUHQW�FUHGLW�TXDOLW\�OHYHO��7KH�H[DFW�FKDUDFWHUL]DWLRQ�RI�WKLV�VWRFKDVWLF�SURFHVV�UHTXLUHVIXUWKHU�VWXG\�2Q�D�PRUH�GHWDLOHG�OHYHO��SHU�UDWLQJ�FODVV��WKH�VDPH�FRQFOXVLRQV�DUH�GHULYHG�IRU�WKH�UHODWLYHFRQWULEXWLRQ�RI�WKH�ORQJ�WHUP�GHIDXOW�KRUL]RQ�DQG�PLJUDWLRQ�SROLF\�WR�WKH�DJHQF\�UDWLQJVWDELOLW\��)RU�DOO�UDWLQJ�FODVVHV��WKH�UDWLQJ�PLJUDWLRQ�SUREDELOLWLHV�RI�$5�UDWLQJV�DUH�KLJKHU�WKDQWKRVH�RI�DJHQF\�UDWLQJV�E\�D�IDFWRU�RI�DSSUR[LPDWHO\����ZKLOH�WKH�'3�UDWLQJV�DUH�KLJKHU�E\�DIDFWRU�RI�DSSUR[LPDWHO\����VHH�7DEOH�,;���0LJUDWLRQ�SROLF\�SDUDPHWHUV�KDYH�D�VLPLODU�LPSDFWRQ�WKH�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQV�DQG�UDWLQJ�PLJUDWLRQ�ILJXUHV�RI�ERWK�WKH�$5�7+�$)��DQGWKH�/'3�7+�$)��UDWLQJV�

Page 25: Altman Rijken (2004) (Ratings Stability)

��

9,,�&RQFOXVLRQV%RWK�DVSHFWV�RI�WKH�³WKURXJK�WKH�F\FOH´�PHWKRGRORJ\���SUXGHQW�PLJUDWLRQ�SROLF\�DQG�GHIDXOW�SUHGLFWLRQ�WLPH�KRUL]RQ���DUH�UHVSRQVLEOH�IRU�WKH�LQYHVWRUV�SHUFHSWLRQ�RI�ULJLGLW\�LQ�DJHQF\UDWLQJV��)URP�D�VL[�\HDU�SRLQW�LQ�WLPH�SHUVSHFWLYH��ZKHQ�QR�UDWLQJ�VWDELOLW\�LV�GHVLUHG��WKHDJHQF\�UDWLQJ�PLJUDWLRQ�SUREDELOLW\�LV�ORZHU�WKDQ�H[SHFWHG�E\�D�IDFWRU�RI������SULPDULO\�GXH�WRWKH�SUXGHQW�PLJUDWLRQ�SROLF\��$Q�LQYHVWRU�ZLWK�RQH�\HDU�SHUVSHFWLYH�VKRXOG�DSSO\�D�VOLJKWO\KLJKHU�FRUUHFWLRQ�IDFWRU������7KHVH�HPSLULFDO�UHVXOWV�DUH�REWDLQHG�E\�EHQFKPDUNLQJ�DJHQF\�UDWLQJ�G\QDPLFV�DJDLQVW�UDWKHUZHOO�HVWDEOLVKHG�FUHGLW�PRGHO�VFRUHV��ZKLFK�SUR[\�IRU�WKH�SRLQW�LQ�WLPH�SHUVSHFWLYH�RQ�FUHGLWTXDOLW\��,Q�DGGLWLRQ��E\�YDU\LQJ�WKH�GHIDXOW�KRUL]RQ�LQ�HVWLPDWLQJ�GHIDXOW�SUHGLFWLRQ�FUHGLW�VFRULQJ�PRGHOV��ZH�GHPRQVWUDWH�WKDW�DJHQFLHV�IRFXV�RQ�ORQJ�WHUP�GHIDXOW�UDWHV��DQG�QRWPHUHO\�RQ�RQH�\HDU�LQYHVWPHQW�KRUL]RQV�,Q�D�VLPXODWLRQ�H[SHULPHQW��WKH�PLJUDWLRQ�SROLF\�LV�FKDUDFWHUL]HG�E\�WZR�SDUDPHWHUV��$QDJHQF\�UDWLQJ�PLJUDWLRQ�LV�WULJJHUHG�ZKHQ�WKH�SRLQW�LQ�WLPH�UDWLQJ�SUHGLFWLRQ�GLIIHUV�IURP�WKHDFWXDO�DJHQF\�UDWLQJ�E\�DW�OHDVW������QRWFK�VWHSV��,I�WULJJHUHG��WKH�DJHQF\�UDWLQJ�PLJUDWLRQFORVHV�����RI�WKH�JDS�EHWZHHQ�WKH�DFWXDO�DJHQF\�UDWLQJ�OHYHO�DQG�WKH�SUHGLFWHG�UDWLQJ�OHYHO�$OWKRXJK�WKHVH�SDUDPHWHUV�GR�QRW�VXJJHVW�WKDW�WKH�PLJUDWLRQ�SROLF\�ODJV�H[FHVVLYHO\��WKH\�DUHVXIILFLHQW�WR�HQKDQFH�DJHQF\�UDWLQJ�VWDELOLW\�VLJQLILFDQWO\�

Page 26: Altman Rijken (2004) (Ratings Stability)

5HIHUHQFHV$OWPDQ�(��,���������³)LQDQFLDO�UDWLRV��GLVFULPLQDQW�DQDO\VLV�DQG�WKH�SUHGLFWLRQ�RI�FRUSRUDWHEDQNUXSWF\´��-RXUQDO�RI�)LQDQFH ���������±�����$OWPDQ�(��,��DQG�'��/��.DR��������³&RUSRUDWH�%RQG�5DWLQJ�'ULIW��$Q�([DPLQDWLRQ�RI�DJHQF\&UHGLW�TXDOLW\�FKDQJHV´��$,05��&KDUORWWHVYLOOH�9$$OWPDQ�(��,��DQG�'��/��.DR��������³7KH�LPSOLFDWLRQV�RI�FRUSRUDWH�ERQG�UDWLQJV�GULIW´�)LQDQFLDO�$QDO\VWV�-RXUQDO��-XQH�����±���$OWPDQ�(��,���������³7KH�LPSRUWDQFH�DQG�VXEWOHW\�RI�FUHGLW�UDWLQJ�PLJUDWLRQ´��-RXUQDO�RI%DQNLQJ��)LQDQFH ���������± ����$OWPDQ�(��,��DQG�*��%DQD��������³'HIDXOW�DQG�UHWXUQV�RQ�KLJK�\LHOG�ERQGV��WKH�\HDU������LQUHYLHZ�DQG�WKH�PDUNHW�RXWORRN´��DOVR�5HSRUW�RI�VDPH�WLWOH�WKURXJK��������$OWPDQ�DQG)DQMXO���������1<8�6DORPRQ�&HQWHU��6WHUQ�6FKRRO�RI�%XVLQHVV$VVRFLDWLRQ�IRU�)LQDQFLDO�3URIHVVLRQDOV��������³5DWLQJV�$JHQFLHV�6XUYH\��DFFXUDF\�WLPHOLQHVV��DQG�UHJXODWLRQ´��1RYHPEHU��ZZZ�DISRQOLQH�RUJ%DQJLD�$��)��;��'LHEROG��$�.URQLPXV��&��6FKDJHQ�DQG�7��6FKXHUPDQQ��������³5DWLQJVPLJUDWLRQ�DQG�WKH�EXVLQHVV�F\FOH�ZLWK�DSSOLFDWLRQ�WR�FUHGLW�SRUWIROLR�VWUHVV�WHVWLQJ´��-RXUQDORI�%DQNLQJ��)LQDQFH ��������±����%DNHU�+��.��DQG�6��$��0DQVL��������³$VVHVVLQJ�FUHGLW�DJHQFLHV�E\�ERQG�LVVXHUV�DQGLQVWLWXWLRQDO�LQYHVWRUV´��-RXUQDO�RI�%XVLQHVV�)LQDQFH��$FFRXQWLQJ�����������������������%DVHO�&RPPLWWHH�RQ�%DQNLQJ�6XSHUYLVLRQ��������³5DQJH�RI�SUDFWLFH�LQ�EDQNV�LQWHUQDO�UDWLQJV\VWHPV´��GLVFXVVLRQ�SDSHU%OXPH�0��(���)��/LP�DQG�$��&��0DF.LQOD\��������³7KH�GHFOLQLQJ�FUHGLW�TXDOLW\�RI�8�6�&RUSRUDWH�'HEW��0\WK�RU�5HDOLW\�"´��-RXUQDO�RI�)LQDQFH ���������±������&DQWRU�5���������³0RRG\V�,QYHVWRUV�6HUYLFH�5HVSRQVH�WR�WKH�&RQVXOWDWLYH�3DSHU�,VVXHG�E\WKH�%DVHO�&RPPLWWHH�RQ�%DQN�6XSHUYLVLRQ�$�1HZ�&DSLWDO�$GHTXDF\�)UDPHZRUN�³�-RXUQDORI�%DQNLQJ�DQG�)LQDQFH����&DQWRU�5��DQG�&��0DQQ��������³$UH�&RUSRUDWH�%RQG�5DWLQJV�3URF\FOLFDO"´��6SHFLDO�&RPPHQW�0RRG\V�,QYHVWRU�6HUYLFHV��2FWREHU&DQWRU�5��DQG�'��+DPLOWRQ��������³5DWLQJ�7UDQVLWLRQV�DQG�'HIDXOWV�&RQGLWLRQDO�RQ�2XWORRNV�:DWFKOLVWV��DQG�5DWLQJ�+LVWRU\´��6SHFLDO�&RPPHQW��0RRG\V�,QYHVWRU�6HUYLFHV��)HEUXDU\&DUH\�0��DQG�0��+U\FD\��������³3DUDPHWHUL]LQJ�FUHGLW�ULVN�PRGHOV�ZLWK�UDWLQJ�GDWD´��-RXUQDORI�%DQNLQJ�DQG�)LQDQFH �������������(GHULQJWRQ�/��+���������³&ODVVLILFDWLRQ�PRGHOV�DQG�ERQG�UDWLQJV´��7KH�)LQDQFLDO�5HYLHZ �����������±����(OOLV�'���������³'LIIHUHQW�VLGHV�RI�WKH�VDPH�VWRU\��LQYHVWRUV�DQG�LVVXHUV�YLHZV�RI�UDWLQJDJHQFLHV´��7KH�-RXUQDO�RI�)L[HG�,QFRPH ������±���)RQV�-�6���5��&DQWRU�DQG�&��0DKRQH\��������³8QGHUVWDQGLQJ�0RRG\V�FRUSRUDWH�ERQG�UDWLQJVDQG�UDWLQJ�SURFHVV�´�6SHFLDO�&RPPHQW��0RRG\V�,QYHVWRU�6HUYLFHV��0D\(OWRQ�(��-���0��-��*UXEHU��'��$JUDZDO�DQG�&��0DQQ��������³([SODLQLQJ�WKH�UDWH�VSUHDG�RQFRUSRUDWH�ERQGV´��7KH�-RXUQDO�RI�)LQDQFH �������������+X�<��5��.LHVHO�DQG�:��3HUUDXGLQ��������³7KH�HVWLPDWLRQ�RI�PLJUDWLRQ�PDWULFHV�IRU�VRYHUHLJQFUHGLW�UDWLQJV´��-RXUQDO�RI�%DQNLQJ��)LQDQFH ���������±�����

Page 27: Altman Rijken (2004) (Ratings Stability)

��

.DSODQ�5��6��DQG�*��8UZLW]��������³6WDWLVWLFDO�PRGHOV�RI�ERQG�UDWLQJV��D�PHWKRGRORJ\LQTXLU\´��-RXUQDO�RI�%XVLQHVV �������������.DPVWUD�0���3��.HQQHG\�DQG�7��6XDQ��������³&RPELQLQJ�ERQG�UDWLQJ�IRUHFDVWV�XVLQJ�ORJLW´�7KH�)LQDQFLDO�5HYLHZ������������.HDOKRIHU�6���6��.ZRN�DQG�6��:HQJ��������³8VHV�DQG�DEXVHV�RI�GHIDXOW�UDWHV´��&UHGLW0HWULFV0RQLWRU���VW 4XDUWHU���������/DQGR�'��DQG�7��0��6NRGHEHUJ��������³$QDO\]LQJ�UDWLQJ�PLJUDWLRQV�DQG�UDWLQJ�GULIW�ZLWKFRQWLQXRXV�REVHUYDWLRQV´��-RXUQDO�RI�%DQNLQJ��)LQDQFH ��������±����/|IIOHU�*���������³$YRLGLQJ�WKH�UDWLQJ�ERXQFH��ZK\�DJHQFLHV�DUH�VORZ�WR�UHDFW�WR�QHZLQIRUPDWLRQ´��ZRUNLQJ�SDSHU/|IIOHU�*���������³$Q�DQDWRP\�RI�UDWLQJ�WKURXJK�WKH�F\FOH´��-RXUQDO�RI�%DQNLQJ�DQG�)LQDQFH�������������/XFDV�'��DQG�-��/RQVNL��������³&KDQJHV�LQ�&RUSRUDWH�&UHGLW�4XDOLW\������������´�-RXUQDO�RI)L[HG�,QFRPH��0DUFK������1LFNHO�3���:��3HUUDXGLQ�DQG�6��9DURWWR��������³6WDELOLW\�RI�UDWLQJ�PLJUDWLRQV´��-RXUQDO�RI%DQNLQJ��)LQDQFH ��������± ���6WDQGDUG�DQG�3RRUV��������³&RUSRUDWH�5DWLQJV�FULWHULD´��ZZZ�VWDQGDUGDQGSRRUV�FRP7UHDF\�:��)��DQG�0��&DUH\��������³&UHGLW�ULVN�UDWLQJ�DW�ODUJH�86�EDQNV´��)HGHUDO�5HVHUYH%XOOHWLQ�����1RYHPEHU�����������=KRX�&��������³&UHGLW�UDWLQJ�DQG�FRUSRUDWH�GHIDXOWV´��7KH�-RXUQDO�RI�)L[HG�,QFRPH �������±��

Page 28: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�,�'HVFULSWLYH�VWDWLVWLFV�IRU�WKH�PRGHO�YDULDEOHV�LQFOXGHG�LQ�WKH�FUHGLW�VFRULQJPRGHOV7KH�WDEOH�SUHVHQWV�GHVFULSWLYH�SDQHO�GDWD�VWDWLVWLFV�IRU�WKH�PRGHO�YDULDEOHV�LQ�WKH�FUHGLW�VFRULQJPRGHOV��7KH�GDWDVHW�FRQVLVWV�RI��������REVHUYDWLRQV�IURP�WKH�SHULRG������±�������LQFOXGLQJ����REVHUYDWLRQV�RI�ILUPV�OHVV�WKDQ�RQH�\HDU�EHIRUH�GHIDXOW���<�EHIRUH�'���)RU�WKH�SHULRG�DIWHUWKH�GHIDXOW�HYHQW��VXIILFLHQW�GDWD�RQ�WKH�PRGHO�YDULDEOHV�DUH�DYDLODEOH�IRU�����RI�WKH�GHIDXOWHGILUPV��'���:.�LV�QHW�ZRUNLQJ�FDSLWDO��5(�LV�UHWDLQHG�HDUQLQJV��7$�LV�WRWDO�DVVHWV��(%,7�LVHDUQLQJV�EHIRUH�LQWHUHVW�DQG�WD[HV��0(�LV�WKH�PDUNHW�YDOXH�RI�HTXLW\��DQG�%/�LV�WKH�ERRN�YDOXHRI�WRWDO�OLDELOLWLHV��6L]H�HTXDOV�WRWDO�OLDELOLWLHV��QRUPDOL]HG�E\�WKH�WRWDO�YDOXH�RI�WKH�86�HTXLW\PDUNHW��0NW���$JH�LV�WKH�QXPEHU�RI�\HDUV�VLQFH�D�ILUP�ZDV�ILUVW�UDWHG�E\�DQ�DJHQF\��7KHQXPEHUV�LQ�WKH�ILUVW�URZ�UHIHU�WR�&203867$7�GDWD�FRGHV��7KH�YDULDEOHV�5(�7$�DQG(%,7�7$�DQG�0(�%/�DUH�ORJ�WUDQVIRUPHG�DV�LQGLFDWHG�LQ�WKH�WDEOH�DJHQF\UDWLQJ 1 :.�7$���±����� 5(�7$�OQ�������� (%,7�7$�OQ��������� 0(�%/��OQ�0(����� 6L]HOQ�����0NW� $JH

PHDQ�VWDWLVWLF�SHU�UDWLQJ�FODVV$$$ ��� ���� ���� ���� ���� ����� ����$$ ���� ���� ���� ���� ���� ����� ����$ ���� ���� ���� ���� ���� ����� ����%%% ���� ���� ���� ���� ���� ����� ����%% ���� ���� ���� ���� ���� ����� ����% ���� ���� ����� ���� ���� ������ ����&&&�&& ��� ���� ����� ����� ����� ������ ����15 ���� ���� ���� ���� ���� ������ ����PHDQ�RI�REVHUYDWLRQV�RQH�\HDU�SUHFHGLQJ�GHIDXOW���<�EHIRUH�'��DQG�DW�GHIDXOW��'��<�EHIRUH�' ��� ���� ����� ����� ����� ������ ����' ��� ����� ����� ����� ����� ����� ����VWDWLVWLFV�IRU�DOO��������SDQHO�REVHUYDWLRQV��H[FOXGLQJ�'�UDWLQJV�PHDQ ����� ���� ���� ����� ���� ����� ����PHGLDQ ����� ���� ���� ����� ���� ����� ��VW��GHY� ����� ���� ���� ����� ���� ���� ����PLQ ����� ����� ����� ����� ����� ������ �PD[ ����� ���� ���� ���� ���� ����� ��NXUWRVLV ����� ���� ���� ���� ���� ���� ����VNHZQHVV ����� ���� ���� ����� ����� ���� �����

Page 29: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�,,�3DUDPHWHU�HVWLPDWHV�IRU�WKH�'3�PRGHO�DQG�WKH�$5�PRGHO7KH�GHSHQGHQW�ELQDU\�YDULDEOH�LQ�WKH�ORJLW�UHJUHVVLRQ�PRGHO�HVWLPDWLRQ�LV���IRU�WKH�GHIDXOWLQJREVHUYDWLRQV��ILUPV�GHIDXOWLQJ�ZLWKLQ�RQH�\HDU��DQG���IRU�DOO�VXUYLYLQJ�REVHUYDWLRQV��ILUPVVXUYLYLQJ�LQ�VXEVHTXHQW�\HDU���7KH�GHSHQGHQW�YDULDEOH�LQ�WKH�RUGHUHG�ORJLW�UHJUHVVLRQ�PRGHOHVWLPDWLRQ�LV�WKH�QXPHULFDO�DJHQF\�UDWLQJ�VFDOH��&&&�&&� ����%��� ����«���$$� ����$$��$$$� �����7KH�VWDQGDUG�HUURUV�LQ�WKH�ORJLW�UHJUHVVLRQ�HVWLPDWLRQ�DUH�D�JHQHUDOL]HGYHUVLRQ�RI�WKH�+XEHU�DQG�:KLWH�VWDQGDUG�HUURUV��ZKLFK�UHOD[HV�WKH�DVVXPSWLRQV�FRQFHUQLQJ�WKHGLVWULEXWLRQ�RI�HUURU�WHUPV�DQG�LQGHSHQGHQFH�DPRQJ�REVHUYDWLRQV�RI�WKH�VDPH�ILUP��7KH�]�VWDWLVWLFV�DUH�JLYHQ�LQ�EUDFNHWV��7KH�SVHXGR�5� LV�D�PHDVXUH�IRU�WKH�JRRGQHVV�RI�WKH�ILW�

GHIDXOW�SUHGLFWLRQ�PRGHO�ORJLW�PRGHO� DJHQF\�UDWLQJ�SUHGLFWLRQ�PRGHO�RUGHUHG�ORJLW�PRGHO������������ �����±����� ����������� �����������FRQVW ���������� ���������� � �:.�7$ ���������� ������������ ������������ ������������5(�7$ ���������� ���������� ����������� �����������(%,7�7$ ���������� ���������� ���������� ����������0(�%/ ����������� ���������� ����������� �����������6L]H ���������� ������������ ����������� �����������$JH ���������� ���������� ����������� �����������ERXQGDULHV�%N$$$��$$� � � ����� ����$$ � � ����� �����$$� � � ����� �����$� � � ����� �����$ � � ����� �����$� � � ����� �����%%%� � � ����� �����%%% � � ����� �����%%%� � � ����� �����%%� � � ����� �����%% � � ����� �����%%� � � ����� �����%� � � ������ ������% � � ������ ������%� � � ������ ������&&&�&& � � ��� ���SVHXGR�5� ����� ����� ����� �����1�REVHUYDWLRQV ����� ���� ����� ����1�REV����\HDUSUHFHGLQJ�GHIDXOW ��� ��� � �

Page 30: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�,,,�&RPSDULVRQ�RI�WKH�'3��/'3��DQG�$5�PRGHOV7KH�WDEOH�SUHVHQWV�WKH�SDUDPHWHU�HVWLPDWHV�D DQG�EL DQG�WKH�UHODWLYH�ZHLJKW�5:L RI�WKH�PRGHOYDULDEOHV�L�IRU�WKH�'3�PRGHO��WKH�/'3�PRGHOV��DQG�WKH�$5�PRGHO��,Q�FDVH�RI�WKH�/'3�PRGHOVWKH�GHSHQGHQW�ELQDU\�YDULDEOH�LQ�WKH�ORJLW�UHJUHVVLRQ�PRGHO�HVWLPDWLRQ�LV���IRU�WKH�GHIDXOWLQJREVHUYDWLRQV��ILUPV�GHIDXOWLQJ�ZLWKLQ�WKH�GHIDXOW�SUHGLFWLRQ�WLPH�KRUL]RQ��DQG���IRU�DOOVXUYLYLQJ�REVHUYDWLRQV��ILUPV�VXUYLYLQJ�ZLWKLQ�WKH�GHIDXOW�SUHGLFWLRQ�WLPH�KRUL]RQ��7KH�UHODWLYH�ZHLJKW�5:L HTXDOV ¦ ��M MMLL VEVE ��ZKHUH��L LV�WKH�SDUDPHWHU�HVWLPDWH�IRU�PRGHOYDULDEOH�L��DQG�1L LV�WKH�VWDQGDUG�GHYLDWLRQ�LQ�WKH�SDQHO�GLVWULEXWLRQ�RI�PRGHO�YDULDEOH�L�7KH�SDUDPHWHUV�DUH�HVWLPDWHG�IRU�WKH�SHULRG������±�������7KH�VWDQGDUG�HUURUV�LQ�WKH�ORJLWUHJUHVVLRQ�HVWLPDWLRQ�DUH�D�JHQHUDOL]HG�YHUVLRQ�RI�WKH�+XEHU�DQG�:KLWH�VWDQGDUG�HUURUV��ZKLFKUHOD[HV�WKH�DVVXPSWLRQV�FRQFHUQLQJ�WKH�GLVWULEXWLRQ�RI�HUURU�WHUPV�DQG�LQGHSHQGHQFH�DPRQJREVHUYDWLRQV�RI�WKH�VDPH�ILUP��7KH�]�VWDWLVWLFV�DUH�JLYHQ�LQ�EUDFNHWV��7KH�SVHXGR�5� LV�DPHDVXUH�IRU�WKH�JRRGQHVV�RI�WKH�ILW�

'3�PRGHO /'3�PRGHO $5�PRGHOGHIDXOW�SUHGLFWLRQWLPH�KRUL]RQ RQH�\HDU IRXU�\HDUV VL[�\HDUV �5HJUHVVLRQ�UHVXOWVFRQVWDQW ���������� ���������� ���������� ������ �������:.�7$ ���������� ���������� ���������� ������������5(�7$ ���������� ���������� ���������� �����������(%,7�7$ ���������� ���������� ���������� ����������0(�%/ ���������� ���������� ���������� �����������6L]H ���������� ���������� ���������� �����������$JH ����������� ����������� ����������� �����������SVHXGR�5� ����� ����� ����� �������VXUYLYLQJ�REV� ���� ���� ���� ������GHIDXOW�REV� �� ��� ��� �5HODWLYH�ZHLJKW�PRGHO�YDULDEOHV�5::.�7$ ���� ���� ���� ����5(�7$ ���� ���� ����� �����(%,7�7$ ���� ���� ���� ����0(�%/ ����� ����� ����� �����6L]H ����� ����� ����� �����$JH ����� ����� ����� ���� �'XH�WR�VSDFH�FRQVLGHUDWLRQV��RQO\�WKH�HVWLPDWHG�ERXQGDU\�EHWZHHQ�WKH�UDWLQJ�FDWHJRU\�%%��DQG�%%%��%���VHH�HTXDWLRQ������LV�VKRZQ��,Q�WKLV�SDUWLFXODU�FDVH��WKH�VWDQGDUG�HUURU�RI�WKLV�ERXQGDU\�YDOXH�LVJLYHQ�LQ�WKH�EUDFNHWV�

Page 31: Altman Rijken (2004) (Ratings Stability)

��

)LJXUH�,��$YHUDJH�'3�VFRUHV�IRU����DJHQF\�UDWLQJ�FODVVHV$YHUDJH�'3�VFRUHV�IRU�DOO�SDQHO�REVHUYDWLRQV�LQ�D�SDUWLFXODU�DJHQF\�UDWLQJ�FODVV�1�

�� � � � � � � � �� �� �� �� �� ��

��

'3� �������\��������5� ������

'3� �������\�������5� ������

� � � �� ��DJHQF\�UDWLQJ�FODVV�1

DYHUDJH�'3

�VFRUH

Page 32: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�,9�'HVFULSWLYH�VWDWLVWLFV�IRU�WKH�$5�DQG�'3�VFRUHV�ZLWKLQ����DJHQF\�UDWLQJ�FODVVHV)URP�WKH�UHJUHVVLRQ�HTXDWLRQV�LQ�WKH�$5�PRGHO�DQG�'3�PRGHO�WKH�GHSHQGHQW�XQREVHUYDEOHYDULDEOHV�DUH�FDOFXODWHG��$5�VFRUH�DQG�'3�VFRUH��7KH�WDEOH�SUHVHQWV�GHVFULSWLYH�VWDWLVWLFV�IRUWKH�$5�VFRUHV�DQG�WKH�'3�VFRUHV�ZLWKLQ����DJHQF\�UDWLQJ�FODVVHV�IRU�WKH�SHULRGV������±�����DQG������±�������7KH�$5�VFRUHV�DUH�VFDOHG�WR�WKH�ORZHU�ERXQGDU\�RI�WKH�%��UDWLQJ�FODVV�

PHDQ PHGLDQ VWDQGDUG�GHY� 1������� ������� ������� ������� ������� ������� ������� �������$5�VFRUH�� $$$��$$� ����� ����� ����� ����� ���� ���� ��� ����� $$ ���� ����� ����� ����� ���� ���� ��� ����� $$� ���� ����� ����� ����� ���� ���� ��� ����� $� ���� ���� ���� ���� ���� ���� ��� ����� $ ���� ���� ���� ���� ���� ���� ��� ����� $� ���� ���� ���� ���� ���� ���� ��� ����� %%%� ���� ���� ���� ���� ���� ���� ��� ���� %%% ���� ���� ���� ���� ���� ���� ��� ���� %%%� ���� ���� ���� ���� ���� ���� ��� ���� %%� ���� ���� ���� ���� ���� ���� ��� ���� %% ���� ���� ���� ���� ���� ���� ��� ���� %%� ���� ���� ���� ���� ���� ���� ��� ���� %� ���� ���� ���� ���� ���� ���� ��� ���� % ���� ���� ���� ���� ���� ���� ��� ���� %� ���� ���� ���� ���� ���� ���� ��� ���� &&&�&& ���� ���� ���� ���� ���� ���� �� ���'3�VFRUH�� $$$��$$� ���� ���� ���� ���� ���� ���� ��� ����� $$ ���� ���� ���� ���� ���� ���� ��� ����� $$� ���� ���� ���� ���� ���� ���� ��� ����� $� ���� ���� ���� ���� ���� ���� ��� ����� $ ���� ���� ���� ���� ���� ���� ��� ����� $� ���� ���� ���� ���� ���� ���� ��� ����� %%%� ���� ���� ���� ���� ���� ���� ��� ���� %%% ���� ���� ���� ���� ���� ���� ��� ���� %%%� ���� ���� ���� ���� ���� ���� ��� ���� %%� ���� ���� ���� ���� ���� ���� ��� ���� %% ���� ���� ���� ���� ���� ���� ��� ���� %%� ���� ���� ���� ���� ���� ���� ��� ���� %� ���� ���� ���� ���� ���� ���� ��� ���� % ���� ���� ���� ���� ���� ���� ��� ���� %� ���� ���� ���� ���� ���� ���� ��� ���� &&&�&& ���� ���� ���� ���� ���� ���� �� ���

Page 33: Altman Rijken (2004) (Ratings Stability)

��

)LJXUH�,,�&RQFHSW�RI�WKH�EHQFKPDUN�DQDO\VLV

DJHQF\�UDWLQJV

DJHQF\�UDWLQJ�PRGHO$5�PRGHO

ORQJ�WHUP�GHIDXOW�SUHGLFWLRQ�PRGHO/'3�PRGHO

RQH�\HDU�GHIDXOW�SUHGLFWLRQ�PRGHO'3�PRGHO

DJHQF\�PLJUDWLRQ�SROLF\

ORQJ�WHUP�GHIDXOW�ULVN�YLHZV�FUHGLW�VFRUHV�Y�V��DJHQF\�UDWLQJV

GHIDXOW�SUHGLFWLRQ�WLPH�KRUL]RQ

LQ�GHSWK�DQDO\VLV�RI�SULYDWH�DQG�SXEOLF�LQIRUPDWLRQ

LQIRUPDWLRQ�LQ0RGHO�YDULDEOHV

LQIRUPDWLRQ�JDS

Page 34: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�9��8QFRQGLWLRQDO�UDWLQJ�PLJUDWLRQ$5�VFRUHV�DQG�'3�VFRUHV�DUH�FRQYHUWHG�WR�$5�UDWLQJV�DQG�'3�UDWLQJV�LQ�VXFK�D�ZD\�WKDW�HDFK\HDU�WKH�UDWLQJ�GLVWULEXWLRQ��QXPEHU�RI�UDWLQJ�FODVVHV�DQG�QXPEHU�RI�REVHUYDWLRQV�LQ�HDFKUDWLQJ�FODVV��RI�$5�UDWLQJV�DQG�'3�UDWLQJV�HTXDOV�WKH�UDWLQJ�GLVWULEXWLRQ�RI�DJHQF\�UDWLQJV�7KH�WDEOH�SUHVHQWV�WKH�FDOFXODWLRQ�RI�WKH�XQFRQGLWLRQDO�PLJUDWLRQ�RI�DJHQF\�UDWLQJV��$5UDWLQJV�DQG�'3�UDWLQJV��7KH�DYHUDJH�UDWLQJ�PLJUDWLRQ�LV�WKH�GLIIHUHQFH�EHWZHHQ�WKH�DYHUDJHUDWLQJ�OHYHO�RI�ILUPV�HQWHULQJ�WKH�GDWDVHW�DQG�WKH�DYHUDJH�UDWLQJ�OHYHO�RI�ILUPV�H[LWLQJ�WKHGDWDVHW��GLYLGHG�E\�WKH�DYHUDJH�QXPEHU�RI�\HDUV�RI�XQEURNHQ�VWD\�LQ�WKH�GDWDVHW�� ������\HDUV��

UHDVRQV�IRU�ILUPVWR�HQWHU�RU�H[LW�WKH�GDWDVHW 1 ZHLJKW DYHUDJHDJHQF\UDWLQJDYHUDJH$5UDWLQJ

DYHUDJH'3UDWLQJVWDUW�GDWDVHW�LQ����� ��� ����� ���� ����� ����QHZO\�UDWHG�DIWHU����� ��� ����� ���� ���� ����15�VWDWXV�OLIWHG�XS �� ����� ���� ���� ����HQWHU

&203��GDWD�EHFRPH�DYDLODEOH�� ��� ���� ���� ���� ����HQG�RI�WKH�GDWDVHW�LQ����� ��� ����� ���� ���� ����GHIDXOW ��� ����� � � �UDWLQJ�FKDQJHG�WR�15�VWDWXV ��� ����� ���� ���� ����H[LW

&203��GDWD�EHFRPHV�XQDYDLODEOH�� ��� ����� ���� ���� ����QR�H[LW�QR�HQWHU ���� � ���� ���� ����WRWDO�HQWHU ���� ������ ���� ���� ����WRWDO�H[LW��H[FO�GHIDXOW� ���� ����� ���� ���� ����WRWDO�H[LW ���� ������ ���� ���� ����WRWDO�H[LW���WRWDO�HQWHU ����� ����� �����XQFRQGLWLRQDO�DQQXDO�PLJUDWLRQ ����� ����� �����

Page 35: Altman Rijken (2004) (Ratings Stability)

7DEOH�9,�3DQHO�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQV�IRU�DJHQF\�UDWLQJV��$5�UDWLQJV�DQG�'3�UDWLQJV7KH�WDEOH�SUHVHQWV��IRU�DJHQF\�UDWLQJV��$5�UDWLQJV�DQG�'3�UDWLQJV��WKH�SDQHO�GLVWULEXWLRQV�RI�WKH�UDWLQJ�PLJUDWLRQ�'5������XQFRQGLWLRQDOO\�IRU�DOOREVHUYDWLRQV������FRQGLWLRQDOO\�RQ�WKH�UDWLQJ�PLJUDWLRQ�LQ�SUHYLRXV�\HDU������IRU�D�VXE�VDPSOH�RI�QRQ�LQYHVWPHQW�JUDGHG�ILUPV�DQG�IRU�D�VXE�VDPSOH�RILQYHVWPHQW�JUDGHG�ILUPV��DQG�����IRU�WZR�SHULRGV������±������DQG������±�������,Q�WKH�ODVW���FROXPQV��WKH�V\PPHWULF�SURSHUWLHV�RI�WKHVH�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQV�DUH�DVVHVVHG�LQ�WHUPV�RI�WKH�DYHUDJH�UDWLQJ�PLJUDWLRQ�DQG�WKH�UDWLR�LQ�QXPEHU�RI�GRZQJUDGHV�DQG�WKH�QXPEHU�RI�XSJUDGHV��'�8UDWLR���7KH�WZR�VLGHG�VLJQ�WHVW�GHWHUPLQHV��ZKHWKHU�WKH�QXPEHU�RI�GRZQJUDGHV�GLIIHUV�VLJQLILFDQWO\�IURP�WKH�QXPEHU�RI�XSJUDGHV�

UDWLQJ�PLJUDWLRQ�'5��QRWFK�VWHSV� UDWLQJ�PLJUDWLRQ1 ���� �� �� �� � � � !�� '�8UDWLR VLJQ�WHVW]��YDOXH PHDQ W�VWDW�DJHQF\�UDWLQJDOO ����� ���� ���� ���� ���� ����� ���� ���� ���� ���� ����� ����� �����GRZQJUDGH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ���� ���� ���� ���� ��� ����� �����QR�FKDQJH�SUHYLRXV�\HDU ���� ���� ���� ���� ���� ����� ���� ���� ���� ���� ���� ����� �����XSJUDGH�SUHYLRXV�\HDU ��� ���� ���� ���� ���� ����� ����� ���� ���� ���� ����� ���� ���LQYHVWPHQW�JUDGH ���� ���� ���� ���� ���� ����� ���� ���� ���� ���� ����� ����� �����QRQ�LQYHVWPHQW�JUDGH ���� ���� ���� ���� ���� ����� ���� ���� ���� ���� ���� ����� ���������±����� ���� ���� ���� ���� ���� ����� ���� ���� ���� ���� ���� ����� ���������±����� ���� ���� ���� ���� ���� ����� ���� ���� ���� ���� ����� ����� �����$5�UDWLQJDOO ����� ���� ���� ���� ����� ����� ����� ���� ���� ���� ����� ����� �����GRZQJUDGH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����QR�FKDQJH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����XSJUDGH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����LQYHVWPHQW�JUDGH ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ����� ����� �����QRQ�LQYHVWPHQW�JUDGH ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ���������±����� ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ���������±����� ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� �����'3�UDWLQJDOO ����� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����GRZQJUDGH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����QR�FKDQJH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����XSJUDGH�SUHYLRXV�\HDU ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� ����LQYHVWPHQW�JUDGH ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ����� ����� �����QRQ�LQYHVWPHQW�JUDGH ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ��� ���� ��������±����� ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ��� ���� ���������±����� ���� ���� ���� ���� ����� ����� ����� ���� ���� ���� ���� ����� �����

Page 36: Altman Rijken (2004) (Ratings Stability)

)LJXUH�,,,�&XPXODWLYH�UDWLQJ�PLJUDWLRQ�FRQGLWLRQDO�RQ�DQ�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW7KH�ILJXUH�VKRZV�WKH�FXPXODWLYH�UDWLQJ�PLJUDWLRQ�û5&��IRU�DJHQF\�UDWLQJV�1��$5�UDWLQJV�/'3UDWLQJV�DQG�'3�UDWLQJV�FRQGLWLRQDO�RQ�DQ�DJHQF\�UDWLQJ�PLJUDWLRQ�HYHQW��%DVH�\HDU�IRU�WKHDFFXPXODWLRQ�RI�UDWLQJ�PLJUDWLRQV�LV�W� �����RQ�DYHUDJH�����\HDUV�EHIRUH�WKH�DJHQF\�UDWLQJPLJUDWLRQ�HYHQW��7KH�H[SUHVVLRQV�û1&����DQG�û1&����UHIHU�WR�WKH�FXPXODWLYH�DJHQF\�UDWLQJPLJUDWLRQ�FRQGLWLRQDO�RQ�UHVSHFWLYHO\�DQ�XSJUDGH�LQ�SHULRG��������DQG�D�GRZQJUDGH�LQ�SHULRG��������7KH�û1&����DQG�û1&����ILJXUHV�DUH�VXEWUDFWHG�E\�û1&�����WKH�FXPXODWLYH�DJHQF\�UDWLQJPLJUDWLRQ�FRQGLWLRQDO�RQ�QR�PLJUDWLRQ�LQ�SHULRG���������&RPSDUDEOH�GHILQLWLRQV�DSSO\�WR�WKH$5�UDWLQJV��/'3�UDWLQJV�DQG�'3�UDWLQJV��,Q�RUGHU�WR�FRPSDUH�WKH�û&0& ILJXUHV�FRUUHFWO\�ZLWKû1& ILJXUHV��LQ�WHUPV�RI�DJHQF\�UDWLQJ�QRWFK�VWHSV��WKH�û&0& ILJXUHV�DUH�VFDOHG�E\�N5 ��WKHVORSH�LQ�WKH�UHJUHVVLRQ�HTXDWLRQ��&0� �N51���FRQVWDQW�

�����

�����

�����

����

����

����

����

�� �� �� �� � � � � �\HDU�W

FXPXODWLYH

�PLJUDWLRQ�

û5��QRWFK�V

WHSV��DJHQ

F\�UDWLQJ�VF

DOH���

7LPLQJ�DJHQF\�UDWLQJ�PLJUDWLRQ

û'3&���û/'3&���û$5&���û1&���û1&���û$5&���û/'3&���û'3&���

Page 37: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�9,,�5DWLQJ�PLJUDWLRQ�GLVWULEXWLRQ�DQG�UDWLQJ�GULIW�SURSHUWLHV�IRU�DJHQF\�UDWLQJVDQG�VLPXODWHG�$5�7+�$)��UDWLQJV7KH�SUXGHQW�PLJUDWLRQ�SROLF\�LV�FKDUDFWHUL]HG�DFFRUGLQJ�WR�WZR�SDUDPHWHUV�±�D�WKUHVKROGSDUDPHWHU�7+�DQG�DQ�DGMXVWPHQW�IUDFWLRQ�SDUDPHWHU�$)��,Q�D�VLPXODWLRQ�H[SHULPHQW�WKH�$5VFRUH�DUH�PRGLILHG�WR�$50 VFRUHV�UHIOHFWLQJ�D�PLJUDWLRQ�SROLF\�FKDUDFWHUL]HG�E\�WKH�WZRPLJUDWLRQ�SROLF\�SDUDPHWHUV�7+�DQG�$)��6XEVHTXHQWO\�WKHVH�PRGLILHG�$50 VFRUHV�DUHFRQYHUWHG�WR�$5�7+�$)��UDWLQJV��7KH�WDEOH�SUHVHQWV�WKH�UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQ�DQGUDWLQJ�GULIW�SURSHUWLHV�IRU�DJHQF\�UDWLQJV��$5�UDWLQJV�DQG�VLPXODWHG�$5�7+�$)��UDWLQJV��7KHDYHUDJH�UDWLQJ�PLJUDWLRQ�DQG�VWDQGDUG�GHYLDWLRQ�RI�UDWLQJ�PLJUDWLRQV�DUH�JLYHQXQFRQGLWLRQDOO\�IRU�DOO�REVHUYDWLRQV��³DOO´��DQG�FRQGLWLRQDOO\�RQ�PLJUDWLRQ�LQ�WKH�SUHYLRXV\HDU�

UDWLQJ�PLJUDWLRQ�LQ�WKH�SUHYLRXV�\HDU��QRWFK�VWHSV�UDWLQJ DOO ���� �� � � !��DYHUDJH�UDWLQJ�PLJUDWLRQ��QRWFK�VWHSV�DJHQF\�UDWLQJ ����� ����� ����� ����� ���� ����$5�UDWLQJ ����� ���� ����� ����� ����� �����$5�UDWLQJ��7+� �������$)� �� ����� ����� ����� ����� ���� �����$5�UDWLQJ��7+� �������$)� ����� ����� ����� ����� ����� ���� ����$5�UDWLQJ��7+� �������$)� ����� ����� ����� ����� ����� ���� ����$5�UDWLQJ��7+� �������$)� ����� ����� ����� ����� ����� ���� ����VWDQGDUG�GHYLDWLRQ�RI�UDWLQJ�PLJUDWLRQ��QRWFK�VWHSV�DJHQF\�UDWLQJ ���� ���� ���� ���� ���� ����$5�UDWLQJ ���� ���� ���� ���� ���� ����$5�UDWLQJ��7+� �������$)� �� ���� ���� ���� ���� ���� ����$5�UDWLQJ��7+� �������$)� ����� ���� ���� ���� ���� ���� ����$5�UDWLQJ��7+� �������$)� ����� ���� ���� ���� ���� ���� ����$5�UDWLQJ��7+� �������$)� ����� ���� ���� ���� ���� ���� ����UDWLQJ�PLJUDWLRQ�GLVWULEXWLRQDJHQF\�UDWLQJ ����� ���� ���� ����� ���� ����$5�UDWLQJ ����� ���� ����� ����� ����� ����$5�UDWLQJ��7+� �������$)� �� ����� ���� ���� ����� ���� ����$5�UDWLQJ��7+� �������$)� ����� ����� ���� ���� ����� ���� ����$5�UDWLQJ��7+� �������$)� ����� ����� ���� ���� ����� ���� ����$5�UDWLQJ��7+� �������$)� ����� ����� ���� ���� ����� ���� ���� �1XPEHU�RI�REVHUYDWLRQV�HPSOR\HG�LQ�WKH�DQDO\VLV

Page 38: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�9,,,�2QH�\HDU�UDWLQJ�PLJUDWLRQ�PDWUL[7KH�G\QDPLFV�RI�DJHQF\�UDWLQJV��VLPXODWHG�$5������������UDWLQJV��$5�UDWLQJV��/'3�UDWLQJVDQG�'3�UDWLQJV�DUH�GHSLFWHG�LQ�D�RQH�\HDU�WUDQVLWLRQ�PDWUL[��7KH�HOHPHQWV�LQ�WKH�UDWLQJ�PLJUDWLRQ�PDWUL[��\W���\W��UHSUHVHQW�WKH�RQH�\HDU�SUREDELOLW\�RI�D�PLJUDWLRQ�IURP�UDWLQJ�FODVV�\W�� WR�UDWLQJ�FODVV�\W�

DJHQF\�UDWLQJ$$$ $$ $ %%% %% % &&& GHIDXOW$$$ ���� ���� ���� ���� ���� ���� ���� ����$$ ���� ���� ���� ���� ���� ���� ���� ����$ ���� ���� ���� ���� ���� ���� ���� ����%%% ���� ���� ���� ���� ���� ���� ���� ����%% ���� ���� ���� ���� ���� ���� ���� ����% ���� ���� ���� ���� ���� ���� ���� ����&&&�&& ���� ���� ���� ���� ���� ���� ���� ����$5������������UDWLQJ$$$ $$ $ %%% %% % &&& GHIDXOW$$$ ���� ���� ���� ���� ���� ���� ���� ����$$ ���� ���� ���� ���� ���� ���� ���� ����$ ���� ���� ���� ���� ���� ���� ���� ����%%% ���� ���� ���� ���� ���� ���� ���� ����%% ���� ���� ���� ���� ���� ���� ���� ����% ���� ���� ���� ���� ���� ���� ���� ����&&&�&& ���� ���� ���� ���� ���� ���� ���� ����

$5�UDWLQJ$$$ $$ $ %%% %% % &&& GHIDXOW$$$ ���� ���� ���� ���� ���� ���� ���� ����$$ ���� ���� ���� ���� ���� ���� ���� ����$ ���� ���� ���� ���� ���� ���� ���� ����%%% ���� ���� ���� ���� ���� ���� ���� ����%% ���� ���� ���� ���� ���� ���� ���� ����% ���� ���� ���� ���� ���� ���� ���� ����&&&�&& ���� ���� ���� ���� ���� ���� ���� ����

Page 39: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�9,,,��FRQWG�/'3�UDWLQJ$$$ $$ $ %%% %% % &&& GHIDXOW$$$ ���� ���� ���� ���� ���� ���� ���� ����$$ ���� ���� ���� ���� ���� ���� ���� ����$ ���� ���� ���� ���� ���� ���� ���� ����%%% ���� ���� ���� ���� ���� ���� ���� ����%% ���� ���� ���� ���� ���� ���� ���� ����% ���� ���� ���� ���� ���� ���� ���� ����&&&�&& ���� ���� ���� ���� ���� ���� ���� ����'3�UDWLQJ$$$ $$ $ %%% %% % &&& GHIDXOW$$$ ���� ���� ���� ���� ���� ���� ���� ����$$ ���� ���� ���� ���� ���� ���� ���� ����$ ���� ���� ���� ���� ���� ���� ���� ����%%% ���� ���� ���� ���� ���� ���� ���� ����%% ���� ���� ���� ���� ���� ���� ���� ����% ���� ���� ���� ���� ���� ���� ���� ����&&&�&& ���� ���� ���� ���� ���� ���� ���� ����

Page 40: Altman Rijken (2004) (Ratings Stability)

��

7DEOH�,;�5DWLQJ�PLJUDWLRQ�DQG�UDWLQJ�PLJUDWLRQ�SUREDELOLW\�LQ�D�RQH�\HDU�UDWLQJ�PLJUDWLRQ�PDWUL[2Q�D�PDMRU�UDWLQJ�FODVV�OHYHO�1��WKH�WDEOH�SUHVHQWV�WKH�DYHUDJH�UDWLQJ�PLJUDWLRQ�û5�1��DQGUDWLQJ�PLJUDWLRQ�SUREDELOLW\�3�1��LQ�WKH�RQH�\HDU�PLJUDWLRQ�PDWUL[�IRU�DJHQF\�UDWLQJV�$5�7+�$)��UDWLQJV��/'3�7+�$)��UDWLQJV�DQG�'3�UDWLQJV��/'3�7+�$)��DUH�GHILQHG�LQ�DVLPLODU�ZD\�DV�$5�7+�$)��UDWLQJV��E\�PRGLI\LQJ�/'3�VFRUHV�LQVWHDG�RI�$5�VFRUHV�0LJUDWLRQV�WR�GHIDXOW�DUH�H[FOXGHG�IURP�WKH�FRPSXWDWLRQ�RI�WKHVH�ILJXUHV�UDWLQJ�FODVV�\ $$$ $$ $ %%% %% % &&& DOOUDWLQJ�PLJUDWLRQ�û5�1�DJHQF\�UDWLQJ ������ ������ ������ ������ ������ ����� ����� ������$5������������UDWLQJ ������ ������ ������ ������ ������ ����� ����� ������$5���������UDWLQJ ������ ������ ������ ������ ������ ����� ����� ������$5�UDWLQJ ������ ������ ������ ������ ������ ����� ����� ������/'3������������UDWLQJ ������ ������ ������ ������ ������ ����� ����� ������/'3���������UDWLQJ ������ ������ ������ ������ ����� ����� ����� ������/'3�UDWLQJ ������ ������ ������ ������ ����� ����� ����� ������'3�UDWLQJ ������ ������ ������ ������ ����� ����� ����� ������UDWLQJ�PLJUDWLRQ�SUREDELOLW\�3�1�DJHQF\�UDWLQJ ���� ���� ���� ����� ����� ����� ����� ����$5������������UDWLQJ ���� ����� ���� ����� ����� ���� ����� ����$5���������UDWLQJ ���� ����� ����� ����� ����� ����� ����� �����$5�UDWLQJ ����� ����� ����� ����� ����� ����� ����� �����/'3������������UDWLQJ ���� ����� ���� ����� ����� ����� ����� �����/'3���������UDWLQJ ���� ����� ����� ����� ����� ����� ����� �����/'3�UDWLQJ ����� ����� ����� ����� ����� ����� ����� �����'3�UDWLQJ ����� ����� ����� ����� ����� ����� ����� �����

Page 41: Altman Rijken (2004) (Ratings Stability)

��

(QGQRWHV� 7KH�FULWLTXH�RI�UDWLQJ�DJHQFLHV�IRFXVHV�PDLQO\�RQ�WKH�WLPHOLQHVV�SURSHUWLHV�RI�DJHQF\�UDWLQJV��DQGQRW�RQ�WKH�DFWXDO�OHYHO�RI�DFFXUDF\��7KH�$)3�VXUYH\�UHYHDOV�WKDW�����RI�WKH�LQYHVWRUV�VXUYH\HGEHOLHYH�WKDW��PRVW�RI�WKH�WLPH��DJHQF\�UDWLQJV�DFFXUDWHO\�UHIOHFW�WKH�LVVXHUV�FUHGLWZRUWKLQHVV�� 7KLV�YLHZ�KDV�EHHQ�HFKRHG�LQ�D�ODUJH�QXPEHU�RI�FRQYHUVDWLRQV�DQG�LQWHUYLHZV�ZLWK�PDUNHWSUDFWLWLRQHUV�� ,Q�WKHLU�GLVFORVXUH�RQ�FRUSRUDWH�UDWLQJV�FULWHULD��6WDQGDUG��3RRUV�H[SODLQV�KRZ�WR�LQWHUSUHW�WKHLUFUHGLW�UDWLQJV��6WDQGDUG��3RRUV��������&RUSRUDWH�5DWLQJV�&ULWHULD���³6WDQGDUG��3RRUV�FUHGLWUDWLQJV�DUH�PHDQW�WR�EH�IRUZDUG�ORRNLQJ��WKDW�LV��WKHLU�WLPH�KRUL]RQ�H[WHQGV�DV�IDU�DV�LV�DQDO\WLFDOO\IRUHVHHDEOH��$FFRUGLQJO\��WKH�DQWLFLSDWHG�XSV�DQG�GRZQV�RI�EXVLQHVV�F\FOHV���ZKHWKHU�LQGXVWU\VSHFLILF�RU�UHODWHG�WR�WKH�JHQHUDO�HFRQRP\���VKRXOG�EH�IDFWRUHG�LQ�WKH�FUHGLW�UDWLQJ�DOO�DORQJ��7KLVDSSURDFK�LV�LQ�NHHSLQJ�ZLWK�6WDQGDUGV�DQG�3RRUV�EHOLHI�WKDW�WKH�YDOXH�RI�LWV�UDWLQJ�SURGXFWV�LVJUHDWHVW�ZKHQ�LWV�UDWLQJ�GRHV�QRW�IOXFWXDWH�ZLWK�QHDU�WHUP�SHUIRUPDQFH��5DWLQJV�VKRXOG�QHYHU�EH�DPHUH�VQDSVKRW�RI�WKH�SUHVHQW�VLWXDWLRQ��7KHUH�DUH�WZR�PRGHOV�IRU�KRZ�F\FOLFDOLW\�LV�LQFRUSRUDWHG�LQFUHGLW�UDWLQJV��6RPHWLPHV��UDWLQJV�DUH�KHOG�FRQVWDQW�WKURXJKRXW�WKH�F\FOH��$OWHUQDWLYHO\��WKH�UDWLQJGRHV�YDU\��EXW�ZLWKLQ�D�QDUURZ�EDQG´�� $FFRUGLQJ�WR�0RRG\V��WKURXJK�WKH�F\FOH�PHWKRGRORJ\�PDQDJHV�WKH�WHQVLRQ�EHWZHHQ�UDWLQJWLPHOLQHVV�DQG�UDWLQJ�VWDELOLW\��³,I�RYHU�WLPH�QHZ�LQIRUPDWLRQ�UHYHDOV�D�SRWHQWLDO�FKDQJH�LQ�DQLVVXHUV�UHODWLYH�FUHGLWZRUWKLQHVV��0RRG\V�FRQVLGHUV�ZKHWKHU�RU�QRW�WR�DGMXVW�WKH�UDWLQJ��,W�PDQDJHVWKH�WHQVLRQ�EHWZHHQ�LWV�GXDO�REMHFWLYHV���DFFXUDF\�DQG�VWDELOLW\�±�E\�FKDQJLQJ�UDWLQJV�RQO\�ZKHQ�LWEHOLHYHV�DQ�LVVXHU�KDV�H[SHULHQFHG�ZKDW�LV�OLNHO\�WR�EH�DQ�HQGXULQJ�FKDQJH�LQ�IXQGDPHQWDOFUHGLWZRUWKLQHVV��)RU�WKLV�UHDVRQ��UDWLQJV�DUH�VDLG�WR�µORRN�WKURXJK�WKH�F\FOH�¶´���&DQWRU�DQG�0DQQ�������� $FFRUGLQJ�WR�0RRG\V��WKH�RSWLPDO�EDODQFH�EHWZHHQ�UDWLQJ�VWDELOLW\�DQG�UDWLQJ�WLPHOLQHVV�UHVXOWVIURP�D�FORVH�LQWHUDFWLRQ�EHWZHHQ�DJHQFLHV�DQG�PDUNHW�SDUWLFLSDQWV��³,Q�UHVSRQVH�WR�SHUVLVWHQWPDUNHW�IHHGEDFN��0RRG\V�PDQDJHV�LWV�UDWLQJV�ZLWK�DQ�H\H�WRZDUGV�PLQLPL]LQJ�DEUXSW�FKDQJHV�LQUDWLQJ�OHYHOV�´ �&DQWRU��������� 7KHUH�LV�QR�FRQVHQVXV�RQ�WKH�GHWDLOV�RI�WKH�LPSOHPHQWDWLRQ�RI�WKH�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�&DUH\�DQG�+U\FD\��������GHVFULEH�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�DV�D�UDWLQJ�DVVLJQPHQW�EDVHG�RQD�VWUHVV�VFHQDULR��:KHQ�ILUPV�DUH�FRQVHTXHQWO\�UDWHG�LQ�WKH�ERWWRP�RI�WKH�FUHGLW�TXDOLW\�F\FOH�DJHQF\�UDWLQJV�DUH�LQVHQVLWLYH�WR�WKH�FUHGLW�TXDOLW\�F\FOH�DQG�IRFXV�RQ�WKH�ORQJ�WHUP���$Q�DOWHUQDWLYHLQWHUSUHWDWLRQ�RI�WKURXJK�WKH�F\FOH�PHWKRGRORJ\�LV�WR�H[WUDFW�WKH�SHUPDQHQW�FRPSRQHQW�IURPFKDQJHV�LQ�WKH�REVHUYHG�FUHGLW�TXDOLW\��RQ�WKH�EDVLV�RI�D�IRUHFDVWLQJ�DQDO\VLV��³(YHQ�WKRXJK�DQLVVXHU�PLJKW�H[SHULHQFH�D�FKDQJH�LQ�LWV�ILQDQFLDO�SHUIRUPDQFH�DV�D�UHVXOW�RI�DQ�DGMXVWPHQW�LQ�WKHPDFURHFRQRPLF�HQYLURQPHQW��LWV�UDWLQJ�PD\�QRQHWKHOHVV�UHPDLQ�XQFKDQJHG�LI�LW�LV�OLNHO\�WKDW�LWVSUHYLRXV�ILQDQFLDO�FRQGLWLRQ�ZLOO�EH�UHVWRUHG�GXULQJ�WKH�QH[W�SKDVH�RI�WKH�F\FOH� ´��&DQWRU�DQG0DQQ��������� 7KLV�DGMXVWPHQW�IUDFWLRQ�H[SODLQV�WKH�VHULDO�FRUUHODWLRQ�LQ�DJHQF\�UDWLQJ�PLJUDWLRQ��/|IIOHU¶V�������PXOWLSOH�WKUHVKROG�PRGHO�H[SODLQV�UDWLQJ�GULIW�DV�ZHOO��,Q�D�FORVHO\�UHODWHG�SDSHU��/|IIOHU�������H[DPLQHV�DOWHUQDWLYH�H[SODQDWLRQV�IRU�UDWLQJ�GULIW��7KH�SDUWLDO�UDWLQJ�DGMXVWPHQW�K\SRWKHVLV�VHHPV�WREH�PRVW�FRQYLQFLQJ��KRZHYHU�� 7KH�HPSLULFDO�DQDO\VLV�LV�FRQGXFWHG�XVLQJ�GDWD�RQ�6WDQGDUG��3RRU¶V�FRUSRUDWH�LVVXHU�FUHGLW�UDWLQJV�:H�DUH�QRW�DZDUH��KRZHYHU��RI�D�UHDVRQ�ZK\�WKH�HPSLULFDO�UHVXOWV�DQG�WKH�FRQFOXVLRQV�SUHVHQWHGKHUH�IRU�6WDQGDUG�DQG�3RRUV�UDWLQJV�VKRXOG�QRW�DSSO\�IRU�WKH�UDWLQJV�RI�0RRG\V�DQG�)LWFK��7KHGLVFXVVLRQV�DQG�FRQFOXVLRQV�LQ�WKLV�SDSHU�DUH�WKHUHIRUH�JHQHUDOL]HG�WR�WKH�DJHQF\�UDWLQJV�RI�6WDQGDUGDQG�3RRUV�DQG�0RRG\V�DQG�)LWFK��6WULFWO\�VSHDNLQJ��WKH�HPSLULFDO�UHVXOWV�UHIHU�RQO\�WR�WKH�UDWLQJV�RI6WDQGDUG�DQG�3RRUV�

Page 42: Altman Rijken (2004) (Ratings Stability)

��

� %RQG�UDWLQJV�DUH�PRGHOHG�PDLQO\�IRU�WKH�SXUSRVH�RI�IRUHFDVWLQJ�DJHQF\�UDWLQJ�PLJUDWLRQV��VHH�IRUH[DPSOH�(GHULQJWRQ��������.DSODQ�DQG�8UZLW]��������%OXPH�HW�DO���������DQG�.DPVWUD�HW�DO��������$SSOLHG�VWDWLVWLFDO�PHWKRGRORJLHV�DUH�W\SLFDOO\�HLWKHU�RUGLQDU\�OHDVW�VTXDUH�DQDO\VLV��RUGHUHG�SURELWUHJUHVVLRQ�DQDO\VLV��RU�GLVFULPLQDQW�DQDO\VLV��,Q�RUGHU�WR�EH�FRQVLVWHQW�ZLWK�WKH�ORJLW�UHJUHVVLRQPHWKRGRORJ\�RI�WKH�GHIDXOW�SUHGLFWLRQ�PRGHO��ZH�PRGHO�WKH�DJHQF\�UDWLQJV�DV�DQ�RUGHUHG�ORJLWPRGHO��� 5DWLQJ�QXPEHUV���±����DUH�DVVLJQHG�WR�DJHQF\�UDWLQJ�FODVVHV�&&&�&&��%���%��%���%%����%%��%%��%%%����%%%��%%%���$���$��$���$$���$$��DQG�$$��$$$��UHVSHFWLYHO\��,Q�RUGHU�WR�KDYH�DUHDVRQDEOH�QXPEHU�RI�REVHUYDWLRQV�LQ�HDFK�UDWLQJ�FODVV��WKH�DJHQF\�UDWLQJ�FODVVHV�&��&&��&&&��&&&�DQG�&&&��DUH�FRPELQHG�WR�D�VLQJOH�UDWLQJ�FODVV�&&&�&&��DQG�WKH�DJHQF\�UDWLQJ��FODVVHV�$$�DQG�$$$�DUH�FRPELQHG�LQWR�D�VLQJOH�UDWLQJ�FODVV�$$��$$$��� 7KH�$JH�YDULDEOH�LV�VHW�WR����IRU�REVHUYDWLRQV�ZLWK�$JH�YDOXHV�DERYH����DQG�IRU�ILUPV�DOUHDG\�UDWHGDW�WKH�VWDUW�RI�WKH�GDWDVHW�LQ�������� 7KH�GLVWULEXWLRQ�RI�WKH�0(�%/�YDULDEOH�LV�SRVLWLYHO\�VNHZHG��7R�D�OHVVHU�H[WHQW��WKH�GLVWULEXWLRQV�RIWKH�5(�7$�YDULDEOH�DQG�(%,7�7$�YDULDEOH�DUH�QHJDWLYHO\�VNHZHG��7KH�LQIRUPDWLRQ�FRQWHQW�LQ�WKHIDW�WDLOV�RI�WKH�GLVWULEXWLRQV�LV�UHODWLYHO\�ORZ��)RU�H[DPSOH��WKH�GLIIHUHQFH�EHWZHHQ�D�0(�%/�YDOXH�RI���DQG����LV�IDU�OHVV�LQIRUPDWLYH�WKDQ�D�GLIIHUHQFH�EHWZHHQ�D�0(�%/�YDOXH�RI���DQG������ZKLFKPLJKW�GLVWLQJXLVK�D�KHDOWK\�ILUP�IURP�D�ILUP�DSSURDFKLQJ�GHIDXOW���7KH�HIIHFWLYHQHVV�RI�WKH�0(�%/YDULDEOH�LQ�WKH�ORJLW�UHJUHVVLRQ�PRGHO�HVWLPDWH�FDQ�EH�LPSURYHG�E\�D�ORJ�WUDQVIRUPDWLRQ�RI�WKH0(�%/�YDULDEOH��o ����OQ�0(�%/���7KLV�ORJ�WUDQVIRUPDWLRQ�VWUHWFKHV�WKH�LQIRUPDWLYH�SDUW�DW�WKHORZHU�VLGH�RI�WKH�0(�%/�VFDOH�DQG�FRPSUHVVHV�WKH�QRQ�LQIRUPDWLYH�SDUW�DW�WKH�XSSHU�VLGH�RI�WKH0(�%/�VFDOH��)RU�WKH�VDPH�UHDVRQ��WKH�5(�7$�DQG�(%,7�7$�YDULDEOHV�DUH�ORJ�WUDQVIRUPHG���OQ����5(�7$��DQG��OQ�����(%,7�7$���7KH�ORJ�WUDQVIRUPDWLRQ�UHGXFHV�WKH�VNHZQHVV�LQ�WKH�GLVWULEXWLRQ�RIWKHVH�YDULDEOHV��7KH�DYHUDJH�YDOXH�RI�WKHVH�GLVWULEXWLRQV�LV�KDUGO\�DIIHFWHG��DV�WKH�ORJ�WUDQVIRUPDWLRQFHQWHUV�DURXQG���IRU�WKH�0(�%/�YDULDEOH�DQG�DURXQG���IRU�WKH�(%,7�7$�DQG�5(�7$�YDULDEOHV��� 7KH�VDOHV�WR�DVVHW�UDWLR�LV�QRW�LQFOXGHG�LQ�WKH�GHIDXOW�SUHGLFWLRQ�PRGHO��7KLV�YDULDEOH�DGGV�OLWWOHDGGLWLRQDO�YDOXH�WR�D�GHIDXOW�SUHGLFWLRQ�PRGHO�ZKHQ�HVWLPDWHG�IRU�D�VDPSOH�RI�ILUPV�FRYHULQJ�D�ZLGHUDQJH�RI�LQGXVWULHV��� ,Q�D�UHSRUW�RQ�WKHLU�UDWLQJ�PHWKRGRORJ\��6WDQGDUG�DQG�3RRUV��������GHVFULEHV�D�VHW�RI���NH\�UDWLRV�7KHVH�UDWLRV�LQFOXGH�WZR�LQWHUHVW�FRYHUDJH�UDWLRV��WZR�FDVK�IORZ�UDWLRV��WZR�HDUQLQJV�SURILWDELOLW\UDWLRV�DQG�WZR�OHYHUDJH�UDWLRV��,Q�QXPHURXV�HPSLULFDO�VWXGLHV�RQ�FUHGLW�VFRULQJ�PRGHOV��GLIIHUHQWVHWV�RI�YDULDEOHV�DUH�SURSRVHG�WR�SUR[\�IRU�WKHVH�IRXU�JURXSV�RI�FUHGLW�ULVN�IXQGDPHQWDOV��,Q�JHQHUDO�LQWHUHVW�FRYHUDJH�UDWLRV�DQG�FDVK�IORZ�UDWLRV�DSSHDU�WR�DGG�VXUSULVLQJO\�OLWWOH�WR�WKH�H[SODQDWLRQ�RIGHIDXOW��7KH�VWURQJ�FRUUHODWLRQ�ZLWK�HDUQLQJV�SURILWDELOLW\�DQG�OHYHUDJH�SUHVXPDEO\�SUHYHQWV�DVLJQLILFDQW�PDUJLQDO�FRQWULEXWLRQ��0RUHRYHU��LQWHUHVW�FRYHUDJH�UDWLRV�RIWHQ�VXIIHU�IURP�DPELJXLW\SUREOHPV��DV�ERWK�WKH�GHQRPLQDWRU�YDOXHV��LQWHUHVW��DQG�QXPHUDWRU�YDOXHV��(%,7��DUH�FHQWHUHG�FORVHWR����2QO\�WKH�SURILWDELOLW\�DQG�OHYHUDJH�UDWLRV��WKHUHIRUH��DUH�LQFOXGHG�LQ�WKH�EHQFKPDUN�FUHGLW�VFRULQJ�PRGHOV��� $OWKRXJK�WKH�VL]H�RI�WRWDO�PDUNHW�HTXLW\�LV�RIWHQ�LQFOXGHG�LQ�GHIDXOW�SUHGLFWLRQ�PRGHOV��WKLV�YDULDEOHVWURQJO\�FRUUHODWHV�ZLWK�WKH�0(�%/�YDULDEOH��:H�LQFOXGH�WKH�VL]H�RI�WRWDO�OLDELOLWLHV�LQVWHDG��$SDUWIURP�WKLV�WHFKQLFDO�UHDVRQ��WKH�VL]H�RI�WRWDO�OLDELOLWLHV�LV�PRUH�GLUHFWO\�UHODWHG�WR�WKH�WRR�ELJ�WR�IDLOSURWHFWLRQ��2QH�H[SODQDWLRQ�IRU�WKH�WRR�ELJ�WRR�IDLO�SURWHFWLRQ�LV�WKDW�FUHGLW�KROGHUV�PLJKW�VK\�DZD\IURP�WKH�ODUJH�FRQVHTXHQFHV�RI�D�GHIDXOW�RU�EDQNUXSWF\��KRSLQJ�WKDW�WKH�SUREOHPV�ZLOO�EH�VROYHG�E\WLPH��7KH�SRWHQWLDO�ORVV�RI�ODUJH�ORDQV��SRWHQWLDO�GDPDJH�WR�EDQN�UHSXWDWLRQV��DQG�WKH�QXPEHU�RIFUHGLW�KROGHUV�LQYROYHG��PD\�DOO�VORZ�GRZQ�WKH�GHFLVLRQ�SURFHVV��WKHUHE\�DOORZLQJ�PRUH�WLPH�IRUFRPSDQLHV�ZLWK�ODUJHU�ORDQV�WR�UHVWUXFWXUH�WKHPVHOYHV�

Page 43: Altman Rijken (2004) (Ratings Stability)

��

�� $�VWURQJ�QHJDWLYH�UHODWLRQVKLS�H[LVWV�EHWZHHQ�WKH�$JH�YDULDEOH�DQG�WKH�GHIDXOW�UDWH�IRU�$JH�YDOXHVEHORZ�����$Q�H[FHSWLRQ�IRUPV�WKH�ORZ�GHIDXOW�UDWH�LQ�WKH�ILUVW�\HDU�DIWHU�EHLQJ�UDWHG�IRU�WKH�ILUVW�WLPH�$JH� �����7KLV�VXJJHVWV�D�QHHG�IRU�D�GXPP\�YDULDEOH��,Q�D�PXOWLYDULDWH�ORJLW�PRGHO�HVWLPDWH�KRZHYHU��WKH�SDUDPHWHU�RI�WKLV�GXPP\�YDULDEOH�LV�QRW�VWDWLVWLFDOO\�VLJQLILFDQW��7KH�ORZHU�GHIDXOW�UDWHLQ�WKH�ILUVW�\HDU�LV�SUREDEO\�FDSWXUHG�E\�WKH�KHDOWKLHU�ILQDQFLDO�UDWLRV��1HZ�UDWLQJV�RIWHQ�FRLQFLGHZLWK�ERQG�LVVXHV��ZKLFK�HQKDQFH�WKH�ILQDQFLDO�FRQGLWLRQ�RI�WKH�LVVXLQJ�ILUPV��DW�OHDVW�WHPSRUDULO\��� 0RVW�RI�WKH�OLWHUDWXUH�RQ�FUHGLW�VFRULQJ�PRGHOV�ZDV�ZULWWHQ�LQ�WKH�VHYHQWLHV�DQG�WKH�HLJKWLHV�5HVHDUFK�RQ�FUHGLW�VFRULQJ�PRGHOV�KDV�UHFHQWO\�JDLQHG�UHQHZHG�LQWHUHVW�IRU�WZR�UHDVRQV��)LUVW��WKHUHFRUG�KLJK�GHIDXOW�UDWHV�LQ�WKH�\HDUV������DQG�������H�J���$OWPDQ�DQG�%DQD��������VWLPXODWHG�DIXUWKHU�LPSURYHPHQW�DQG�UHILQHPHQW�RI�WKHVH�PRGHOV��6HFRQG��WKH�H[SHFWHG�LPSOHPHQWDWLRQ�RI�WKH%DVOH�,,�DFFRUG�LQ������KDV�WULJJHUHG�HIIRUWV�WR�XSJUDGH�LQWHUQDO�UDWLQJ�V\VWHPV�RI�EDQNLQJLQVWLWXWLRQV��� $SDUW�IURP�PLQRU�GHYLDWLRQV��WKH�GLVWULEXWLRQ�LQ�63�UDWLQJV�LV�QRW�DIIHFWHG�E\�WKLV�GDWD�UHGXFWLRQDQG�VHOHFWLRQ�RI�SXEOLF�ILUPV��7KH�SHUFHQWDJH�RI�GHIDXOWLQJ�REVHUYDWLRQV�DW�WKH�EHJLQQLQJ�RI�WKHQLQHWLHV�VKULQNV��KRZHYHU��ZKLOH�WKH�SHUFHQWDJH�RI�GHIDXOWLQJ�REVHUYDWLRQV�LQ�WKH�\HDUV������DQG�����LQFUHDVHV��3UHVXPDEO\��WKH�FUHGLW�TXDOLW\�RI�SXEOLF�ILUPV�LV�OHVV�DIIHFWHG�WKDQ�WKDW�RI�SULYDWHILUPV�E\�WKH�UHFHVVLRQ�LQ�WKH�EHJLQQLQJ�RI�WKH�QLQHWLHV��,Q�WKH�\HDUV������DQG�������WKH�RSSRVLWHRFFXUUHG��� 7KH�UHDVRQ�WR�LQFOXGH�SDQHO�REVHUYDWLRQV�ZLWK�63�QRQ�UDWHG�VWDWXV�LQ�WKH�HVWLPDWLRQ�RI�WKH�'3PRGHO�LV�WR�PD[LPL]H�WKH�QXPEHU�RI�REVHUYDWLRQV�LQ�WKH�GHIDXOW�SUHGLFWLRQ�PRGHO�HVWLPDWH��)LUPVZLWK�15�VWDWXV�DUH�PRQLWRUHG�IRU�GHIDXOW�HYHQWV�DV�ZHOO��:KHQ�GHIDXOWLQJ��WKH�UDWLQJ�VWDWXV�RI�ILUPVZLWK�15�VWDWXV�FKDQJHV�WR�'�VWDWXV��� )RU�FRPSDQLHV�ZKRVH�ILVFDO�\HDUV�HQG�LQ�'HFHPEHU��WKH�DFFRXQWLQJ�LQIRUPDWLRQ�UHIHUV�WR�WKHSUHYLRXV�ILVFDO�\HDU�ZKLFK�HTXDOV�WKH�SUHYLRXV�FDOHQGDU�\HDU��)RU�DERXW�����RI�WKH�FRPSDQLHV��WKHILVFDO�\HDU�HQGV�LQ�D�PRQWK�RWKHU�WKDQ�'HFHPEHU��)RU�WKHVH�FRPSDQLHV��DSSUR[LPDWHO\��VL[�PRQWKODJJLQJ�DFFRXQWLQJ�LQIRUPDWLRQ�DW�WKH�HQG�RI�-XQH�LV�FRPSXWHG�DV�IROORZV��WKH�LQFRPH�VWDWHPHQWGDWD�DUH�DYHUDJHG�IRU�WKH�IRXU�ILVFDO�TXDUWHUV�HQGLQJ�LQ�WKH�SUHYLRXV�FDOHQGDU�\HDU��,Q�DGGLWLRQ��WKHEDODQFH�VKHHW�GDWD�DUH�WDNHQ�IURP�WKH�ODWHVW�HQGLQJ�ILVFDO�TXDUWHU�LQ�WKH�SUHYLRXV�FDOHQGDU�\HDU��� 7KH�VXUYLYLQJ�REVHUYDWLRQV�UHSUHVHQW�REVHUYDWLRQV�RI�ILUPV�DW�WKH�HQG�RI�-XQH�LQ�\HDU�;�WKDW�DOVRKDYH�VWRFN�H[FKDQJH�OLVWLQJV�DW�WKH�HQG�RI�-XQH�LQ�\HDU�;����7KLV�LPSRVHV�D�VXUYLYRUVKLS�ELDV�5REXVWQHVV�WHVWV�VKRZ�WKDW�WKLV�ELDV�GRHV�QRW�VLJQLILFDQWO\�DIIHFW�WKH�SDUDPHWHU�HVWLPDWHV�RI�WKHEHQFKPDUN�PRGHOV��� 7KH�GHIDXOWLQJ�REVHUYDWLRQV�UHSUHVHQW�REVHUYDWLRQV�RI�ILUPV�DW�WKH�HQG�RI�-XQH�LQ�\HDU�;�WKDW�GHIDXOWEHWZHHQ�WKH�HQG�RI�-XQH�LQ�\HDU�;�DQG�WKH�HQG�RI�-XQH�LQ�\HDU�;����� 7KH�UDZ�&203867$7�GDWD�SURGXFH�VRPH�H[WUHPH�YDOXHV�IRU�WKH�PRGHO�YDULDEOHV�WKDW�FRQWDLQOLWWOH�UHOHYDQW�LQIRUPDWLRQ��,Q�RUGHU�WR�UHGXFH�WKH�LPSDFW�RI�WKHVH�REVHUYDWLRQV�WKH������KLJKHVWYDOXHV�DQG�WKH������ORZHVW�YDOXHV�DUH�WUXQFDWHG�IRU�HDFK�PRGHO�YDULDEOH��7KHVH�YDOXHV�DUH�UHSODFHGE\�YDOXHV�UDQNHG�DW�������DQG�������UHVSHFWLYHO\��%HFDXVH�WKH�GHIDXOW�HYHQW�LV�DQ�H[WUHPH�HYHQW��DFKHFN�LV�FDUULHG�RXW�WR�GHWHUPLQH�WKH�H[WHQW�WR�ZKLFK�WKLV�WUXQFDWLRQ�SURFHGXUH�DIIHFWV�WKHGLVWULEXWLRQ�RI�WKH�PRGHO�YDULDEOHV�IRU�GHIDXOWLQJ�REVHUYDWLRQV��)RU�GHIDXOWLQJ�REVHUYDWLRQV��WKHPD[LPXP�DQG�PLQLPXP�YDOXHV�RI�WKH�PRGHO�YDULDEOHV�GLIIHU�PRUH�WKDQ�WZR�VWDQGDUG�GHYLDWLRQVIURP�WKH�PHDQ�RI�WKH�PRGHO�YDULDEOHV��ZLWK�WKH�H[FHSWLRQ�RI�WKH�$JH�YDULDEOH��� $�ORJLW�PRGHO�WKDW�H[FOXGHV�WKH�0(�%/�YDULDEOH�LV�OHVV�HIIHFWLYH�LQ�H[SODLQLQJ�GHIDXOW�UDWHV�WKDQ�LV�DORJLW�PRGHO�WKDW�LQFOXGHV�RQO\�WKH�0(�%/�YDULDEOH��,QFOXGLQJ�WKH�0(�%/�YDULDEOH�LQ�WKH�ORJLW�PRGHOUHGXFHV�WKH�ZHLJKWV�RI�WKH�(%,7�7$�YDULDEOH�DQG�WKH�5(�7$�YDULDEOH�FRQVLGHUDEO\��� 7KH�'3�PRGHO�LV�HVWLPDWHG�VHSDUDWHO\�IRU�VL[�LQGXVWU\�VHFWRUV��GHILQHG�E\�WKH�ILUVW�GLJLW�RI�WKH�6,&FRGH��7KH�VLJQ�RI�WKH�HVWLPDWHG�SDUDPHWHUV�GRHV�QRW�FKDQJH��WKH�PDJQLWXGH�RI�WKH�SDUDPHWHUV�YDULHV

Page 44: Altman Rijken (2004) (Ratings Stability)

��

ZLWKLQ�D�IDFWRU�WZR�DPRQJ�WKHVH�VL[�LQGXVWU\�VHFWRUV��7KH�SDUDPHWHU�IRU�WKH�:.�7$�YDULDEOH�LV�DQH[FHSWLRQ�WR�WKLV�ILQGLQJ��,W�DSSHDUV�WR�EH�VLJQLILFDQWO\�SRVLWLYH�IRU�WKH�LQIUDVWUXFWXUH�VHUYLFHV�VHFWRU��� 7KH�EDQNUXSWF\�GDWDVHW�FRYHUV�WKH������± �����SHULRG�DQG�FRQWDLQV���������VXUYLYLQJ�REVHUYDWLRQVDQG�����EDQNUXSWF\�REVHUYDWLRQV��ZKLFK�DUH�GHILQHG�LQ�D�PDQQHU�VLPLODU�WR�WKDW�XVHG�IRU�VXUYLYLQJDQG�GHIDXOWLQJ�REVHUYDWLRQV�LQ�WKH�63�FRUSRUDWH�ERQG�GDWDVHW��2QO\�D�VPDOO�SHUFHQWDJH�RI�WKHVHEDQNUXSWF\�REVHUYDWLRQV�RYHUODS�WKH�GHIDXOWLQJ�REVHUYDWLRQV�LQ�WKH�6WDQGDUG�DQG�3RRUV�FRUSRUDWHERQG�GDWDVHW��� 5HVXOWV�DUH�DYDLODEOH�RQ�UHTXHVW��� 7KH�:.�7$�YDULDEOH�LV�DQ�H[FHSWLRQ��$IWHU�FRUUHFWLQJ�IRU�SURILWDELOLW\�DQG��ORQJ�WHUP��ILQDQFLDOOHYHUDJH��ILUPV�ZLWK�D�KLJKHU�:.�7$�YDULDEOH�DUH�UDWHG�ORZHU�E\�WKH�UDWLQJ�DJHQF\��7KLV�VKRZV�XSPRVWO\�LQ�WKH�LQIUDVWUXFWXUH�VHUYLFHV�LQGXVWU\�DQG�PDQXIDFWXULQJ�LQGXVWU\��� 7KH�RQO\�PDMRU�GLIIHUHQFH�LV�WKH�DEVHQFH�RI�D�VLJQLILFDQW�SDUDPHWHU�IRU�WKH�$JH�YDULDEOH�IRU�QRQ�LQYHVWPHQW�JUDGH�ILUPV��� ,Q�RUGHU�WR�DYRLG�RYHU�ZHLJKWLQJ�VKRUW�WHUP�GHIDXOWV�LQ�WKH�HVWLPDWLRQ�RI�WKH�ORQJ�WHUP�GHIDXOWSUREDELOLW\�PRGHO��ZH�OLPLW�WKH�VDPSOH�SHULRG�WR������±�������,Q�WKLV�FDVH��HDFK�ILUP�\HDUREVHUYDWLRQ�FDQ�³ORRN´�VL[�\HDUV�DKHDG��,QFOXGLQJ�REVHUYDWLRQV�LQ�\HDUV�DIWHU������ZRXOG�ORZHU�WKHHIIHFWLYH�WLPH�KRUL]RQ��� 8QOLNH�WKH�'3�PRGHO��WKH�/'3�PRGHO�PRGHOV�PXOWL�\HDU�FXPXODWLYH�GHIDXOW�UDWHV��2EVHUYDWLRQV�RIWKH�VDPH�ILUP�DUH�QRW�RQO\�FRUUHODWHG�EHFDXVH�RI�WKH�UHODWLYH�VWDEOH�FUHGLW�TXDOLW\�SRVLWLRQ�RYHU�WLPH�EXW�DOVR�EHFDXVH�RI�WKH�RYHUODSSLQJ�PXOWL�\HDU�SHULRGV�LQ�WKH�GHILQLWLRQ�RI�GHIDXOWLQJ�REVHUYDWLRQVDQG�VXUYLYLQJ�REVHUYDWLRQV��)RU�FRPSDUDELOLW\�UHDVRQV��DOO�PRGHOV�SUHVHQWHG�LQ�7DEOH�,,,�DUHHVWLPDWHG�IRU�WKH�VDPH�VDPSOH�SHULRG������±�������%HFDXVH�RI�WKHLU�WLPH�UREXVWQHVV��WKH�HVWLPDWHG'3�SDUDPHWHUV�DQG�$5�SDUDPHWHUV�KDUGO\�GLIIHU�EHWZHHQ�DQ�HVWLPDWLRQ�SHULRG������±�������7DEOH,,��DQG������±�������7DEOH�,,,���� 1R�FOHDU�VKLIW�LV�REVHUYHG�LQ�WKH�5:�YDOXHV�RI�WKH�:.�7$��(%,7�7$�DQG�6L]H�YDULDEOHV��7KHVHYDULDEOHV�KDYH�UHODWLYH�ORZ�5:�YDOXHV��DQG�WKH�VLJQ�RI�WKHLU�HVWLPDWHG�PRGHO�SDUDPHWHUV�YDULHV��� 7KH�GLVWLQFWLRQ�EHWZHHQ�WKH�QRQ�LQYHVWPHQW�JUDGHV�QRWFK�QXPEHU���±����DQG�LQYHVWPHQW�JUDGHV�QRWFK�QXPEHU���±�����LV�GHWHUPLQHG�E\�H\H��7KH�EUHDNLQJ�SRLQW�FRXOG�HTXDOO\�ZHOO�EH�FKRVHQ�RQHQRWFK�EHORZ�RU�DERYH��� 7KH���1�W��LV�FRPSXWHG�DV�IROORZV��)RU�HDFK�\HDU�W��WKH�DYHUDJH�&0�1�W��VFRUHV�DUH�FRPSXWHG�IRU���UDWLQJ�FODVVHV�1��)RU�1�� >������@����1�W��UHVXOWV�IURP�WKH�UHJUHVVLRQ�HTXDWLRQ�&0� �. ��� 1��ZLWK�1� >������@��)RU�1�� >�������@����1�W��UHVXOWV�IURP�WKH�UHJUHVVLRQ�HTXDWLRQ�&0� �. ��� 1��ZLWK�1��>�������@������W��LV�VHW�WR�HTXDO�&0���W����&0���W��������W��LV�VHW�WR�HTXDO�&0����W����&0����W���,QRUGHU�WR�UHGXFH�QRLVH��WKH�DYHUDJH�� ILJXUH�LV�FRPSXWHG�IRU�WKH�FXUUHQW�DQG�WZR�SUHYLRXV�\HDUV���1�W��: ^��1�W������1�W��������1�W���`����([FHSWLRQV�DUH�PDGH�IRU�W� ���������1�W��: ^��1�W�����1�W���`���DQG�W� ���������1�W��LV�QRW�UHSODFHG��� 'XH�WR�VSDFH�FRQVLGHUDWLRQV��WKHVH�UHVXOWV�DUH�QRW�SUHVHQWHG�LQ�WKLV�SDSHU��5HVXOWV�DUH�DYDLODEOH�RQUHTXHVW��� :H�KDYH�QRW�H[DPLQHG�D�SRVVLEOH�UHODWLRQVKLS�EHWZHHQ�UDWLQJ�OHYHO�DQG�UHDVRQV�IRU�WKH�DEVHQFH�RI&203867$7�GDWD�DQG�WKH�UHDVRQV�IRU�D�VZLWFK�WR�D�QRQ�UDWHG�VWDWXV��� )URP�D�WHFKQLFDO�SHUVSHFWLYH��WKH�JUHDWHU�DQWLFLSDWLRQ�HYLGHQFH�LQ�'3�UDWLQJV�LV�GULYHQ�E\�D�KLJKHUVHQVLWLYLW\�WR�FKDQJHV�LQ�PDUNHW�HTXLW\�YDOXH��VHH�WKH�GLVFXVVLRQ�LQ�6HFWLRQ�������� 'XH�WR�VSDFH�FRQVLGHUDWLRQV��WKH�UREXVWQHVV�WHVW�UHVXOWV�IRU�WKH�WZR�SHULRGV�DUH�QRW�SUHVHQWHG�LQ�WKLVSDSHU��5HVXOWV�DUH�DYDLODEOH�RQ�UHTXHVW��� 7KH�PLQLPXP�WKUHVKROG�OHYHO��LPSOLHG�E\�WKH�GLVFUHWH�DJHQF\�UDWLQJ�VFDOH��LV�����QRWFK�VWHSV��� 7KH�LQVHQVLWLYLW\�RI�UDWLQJ�GULIW�SURSHUWLHV�WR�WKH�WKUHVKROG�OHYHO�7+�GLVSHOV�D�FRQFHUQ�WKDW�WKHDEVHQFH�RI�UDWLQJ�GULIW�LQ�&0�UDWLQJV�LV�GXH�WR�D�FRXQWHUYDLOLQJ�HIIHFW�RI�FRQWLQXRXVO\�UHYHUWLQJ

Page 45: Altman Rijken (2004) (Ratings Stability)

��

QRLV\�&0�VFRUHV��:HUH�WKLV�HIIHFW�WR�H[LVW��WKH�UDWLQJ�GULIW�SURSHUWLHV�VKRXOG�GHSHQG�RQ�WKH�WKUHVKROGOHYHO��DQG�WKLV�LV�QRW�WKH�FDVH��� 2QO\�FRQGLWLRQDO�RQ�'5W�� �����DQG�'5W�� ����VOLJKW�GLIIHUHQFHV�LQ�WKH�DYHUDJH�UDWLQJ�PLJUDWLRQ�'5WDUH�REVHUYHG��� 2Q�D�PDMRU�UDWLQJ�OHYHO��UDWLQJ�QXPEHUV���±���UHIHU�WR�WKH�IROORZLQJ�DJHQF\�UDWLQJ�UDWLQJ�FODVVHV�&&&�&&��%��%%��%%%��$��$$�DQG�$$$��7KH�UDWLQJ�FODVV�&&&�&&�LV�D�FRPELQDWLRQ�RI�WKH�UDWLQJFODVVHV�&��&&�DQG�&&&�