RiskMetrics Group Inc. (NYSE: RISK), a leading provider of risk management and corporate governance services to the global financial community, today announced the availability of its Z-Metrics™ credit analysis tool, which estimates company credit ratings and default risk probabilities. The recent high default rate on U.S., Canadian and European high-yield bonds and leveraged loans has credit institutions and investors more closely monitoring the credit-worthiness of corporations.
To enable greater transparency into a firm's credit picture, RiskMetrics, in partnership with Dr. Edward I. Altman, the Max L. Heine Professor of Finance at the NYU Stern School of Business, and the world's leading expert on credit analysis, high yield bonds and distressed debt; and Dr. Herbert Rijken of the Vrije University of Amsterdam, developed the Z-Metrics Methodology. The Z-Metrics model allows investors and creditors to evaluate the credit-worthiness of non-financial companies and includes fundamental as well as equity market variables, including static and trend measures plus macro-economic variables.
The Z-Metrics system has 15 "ratings" categories ranging from the highest quality ZA+ rating to the lowest quality ZF- rating. These ratings categories are explicitly defined and based on Z-Metrics one- and five-year default probabilities. In addition to best estimate default probabilities and ratings, Z-Metrics provides stress default probabilities and ratings based on various scenarios for the model's variables.
"In 2009, the U.S. had over 230 firms with liabilities of at least $100 million that filed for Chapter 11 bankruptcy protection with combined liabilities of over $600 billion," said Jorge Mina, Co-Head of RiskMetrics Group's Risk Management Business. "Given the size and scope of the liabilities, investors are seeking new methodologies for measuring credit risk to supplement credit ratings and market observed spreads as indicators of default risk."
"Z-Metrics will offer investors a robust credit-scoring system built upon a large and representative sample of companies that have either suffered a credit event or remained healthy," said Professor Edward I. Altman. "Our credit analysis models give investors, lenders, regulators and advisors additional powerful tools to assess default probabilities."
RiskMetrics Group's Z-Metrics U.S. model is also applicable to firms outside the U.S. For small firms, a more specialized set of models is currently being tested. To learn more about Z-Metrics, please visit: http://www.riskmetrics.com/z-metrics.