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EDF 8.0 Marks Major Advance in Management of Credit and Loan Default Risk

Moody's KMV, the world's leading provider of quantitative credit risk measurement and management solutions to lenders, investors and corporations, today announced the launch of EDF 8.0, its most innovative credit risk and loan default prediction model to-date. This launch marks a critical milestone in the continuing evolution of Moody’s KMV’s industry-standard public EDF™ (Expected Default Frequency) measures and will enable users to make more informed decisions regarding lending and credit risk.

“Today’s announcement marks a significant step forward in the management of credit risk and default probability,” said Andrew Huddart, president of Moody’s KMV. “EDF 8.0 will be a critical resource for all institutions with credit exposure to publicly traded firms. The model and related tools will enable users to measure credit quality with greater granularity and improves visibility to default probabilities over a greater time span, resulting in greater accuracy and effectiveness in managing default risk. The introduction of EDF 8.0 reinforces Moody’s KMV’s position as the pre-eminent player in the credit risk space.”

The public EDF model is the basis of Moody’s KMV’s CreditEdge®, CreditEdge Plus™ and Credit Monitor® products and is also incorporated into Moody’s KMV’s Portfolio Manager, RiskFrontier™ and CreditMark® offerings. Moody’s KMV’s EDF credit measures represent the only modeling solutions on the market that predict actual default probability across multiple time horizons, enabling more effective management of credit risk at both the individual and portfolio levels, and providing a benchmark for validating internal credit models. Additionally for credit investors, new modeling techniques enabled by EDF 8.0 provide a significant step forward, using improved estimation techniques across the credit term structure that allow a more accurate estimation of a fair value spread for both bonds and CDSs.

EDF 8.0, utilized by both commercial and investment banks as well as buy-side institutions, presents a wealth of advantages including improved benchmarking functionality, pro-forma EDF calculations and higher frequency monitoring for early detection. Buy-side institutions will be afforded improved ability to manage their downside by offering greater distinction between high and low credit quality.

”The release of new EDFs by Moody's KMV will have a significant impact on our rating analysis. Our internal rating and the calculation of Bank's assets’ EL (expected loss), reserves and EC (economic capital) are heavily dependant on Moody’s KMV's EDFs,” said Katie Hysenbegasi, vice president of The Bank of New York. “The new EDFs will directly benefit our internal rating bands which are used to rate our customers. Also, extending the term structure from six to ten years will help in calculating the expected loss of the asset over the life, particularly for those that have maturities of more than five years.”

EDF 8.0 provides an enhanced perspective for credit risk management, specifically:

• Broader Range. - Increased granularity for firms of both very high and very low credit quality : helpful in pricing and structuring,, especially during extremes in the credit cycle

• Improved Long-Term Visibility - Superior approach to calculating long-term EDF levels : critical when considering longer-term exposures

• More Timely Information - Semi-annual financial statements are now available for firms outside North America which better reflect a company’s current capital structure resulting in more accurate EDF credit measures and better-informed credit decisions