LossStats Model From Standard & Poor's Risk Solutions: A Tool To Benchmark LGD

NEW YORK, November 16, 2004--LossStatsSM Model, a leading tool for estimating Loss Given Default (LGD) from Standard & Poor's Risk Solutions, has been upgraded with the ability to customize discount rates and time to emergence.

"LGD estimates are a key requirement of Basel II," said Jane Zennario, vice president and product manager for LossStats, "and as a building block for facility rating systems we believe they are therefore an essential component of a sound credit risk management process. With these new features banks, securitizers, and investors can now customize LossStats Model to produce better estimates of LGD not only across exposures backed by a variety of collateral, but also across a wide range of industries, and from the most senior to most junior tranches of debt."

Clients who license LossStats Model will now be able to choose from three options for discounting ultimate recoveries and calculating LGD probability distributions: 'No Discount', 'Pre-Petition Discount' (the Standard & Poor's Risk Solutions method), or 'Custom Defined Discount'.

"By applying 'no discount' to the distribution, clients will be able to make direct comparisons between the nominal ultimate LGDs generated by this model and the nominal marketing price LGD distributions generated by our trading price model," said Ms. Zennario. "In addition, user-defined discount methodologies will allow clients to leverage their own loss experience, or judgment on losses, to account for regional, sectoral, and/or regulatory differences."

Although the model is trained on a U.S. set of data, clients from around the globe have found LossStats Model to be a useful tool to benchmark their loss estimates against the largest capital market in the world. The ultimate recovery model is trained on Risk Solutions' LossStats database, which has recently been extensively updated to include ultimate recovery data for almost 2,800 instruments from over 600 obligors in 37 industries, dating back to 1988. The trading price model has been trained on a dataset of 30-day distressed debt trading price information for over 1,100 of those instruments.

"In leveraging our well known LossStats Database of publicly available loss data to offer a new quantitative model," added Ms. Zennario, "we are able to help institutions enhance their internal credit and exposure management processes with loss estimates based on sound analysis of both ultimate recovery and trading prices. This improves their ability to better price, hedge and manage risk, prepare for securitization and allocate capital."

Standard & Poor's Risk Solutions offers a comprehensive set of Loss Given Default and Exposure at Default data, models, and services, and has become a global leader in managing loss data consortia for banks that need to supplement their internal data. Risk Solutions has lead consortiums for commercial credit in Singapore, for middle-market exposures in Europe, and for project finance on a global basis. Risk Solutions is now building models for LGD in markets around the globe, based on these consortia and on publicly available information. Risk Solutions also works with banks to build custom models based on their internal data.

For more information about our LossStats suite of products please call (1) 212-438-2774

Providing a rich variety of advanced tools and services, Standard & Poor's Risk Solutions helps clients worldwide to develop, enhance, and validate their credit
assessment processes, collect and analyze data, model credit risk and train staff. Risk Solutions leverages Standard & Poor's experience in credit assessment to help you manage your credit activities with confidence.

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