Pain Points
Members of the credit team were tasked with pinpointing cases where the probability was high that tenants would default on their leases. As a small group, they needed a better way to identify potential problems and create succinct reports for senior management to review different situations. To support this, the team wanted to have:
- A quantitative approach to evaluate the probability of default (PD) for a wide range of rated and unrated, public and private companies.
- An early-warning system to quickly see any deterioration in a tenant’s credit quality.
- The ability to streamline workflows to increase efficiencies.
- Access to research on industries and companies to quickly pull background information into management reports.
The team reached out to S&P Global Market Intelligence (“Market Intelligence”) to discuss the firm’s offering and how processes could be more automated.
The Solution
Market Intelligence discussed its Credit Analytics solution that blends cutting-edge models with robust data to help users easily monitor their tenant portfolios. The models include: Probability of Default Fundamental Model (PDFN), CreditModel™, and PD Market Signals Signals Model (PDMS). Together, they provide the ability to assess companies of any size and put in place an early-warning system to detect possible defaults. Market Intelligence also described its extensive database of public and private company financials, plus a time saving tool for uploading proprietary financials to its desktop solution for further analysis. These capabilities would enable the credit department to:
|
|
Easily assess the creditworthiness of smaller-sized companies |
PDFN enables users to evaluate the one- to five-year default risk of public and private banks, corporations, and Real Estate Investment Trusts. PDs can be mapped to quantitatively-derived credit scores (i.e., ‘bbb’) for increased comparability.[1] Workflows are optimized by accessing a pre-scored database leveraging comprehensive and timely data on over 50 million[2] companies globally. Users may also determine the default risk of a single company or a portfolio of companies. |
|
|
Easily assess the creditworthiness of mid- and large-cap companies |
CreditModel’s suite of statistical models, trained on credit ratings from S&P Global Ratings,[3] enables users to quickly evaluate the long-term creditworthiness of mid- and large-cap, public and private banks, insurance companies, and corporations globally. The models utilize financial statement and macroeconomic data to generate a quantitative credit score that statistically matches a credit rating from S&P Global Ratings. These scores can be mapped to observed default rates to quantify risk. Analysis can be streamlined by accessing a database of over 58,000 pre-scored entities, going back more than 15 years. |
|
|
Create an early-warning system |
PDMS is a statistical model that provides a point-in-time view by evaluating credit default swap spreads to provide an early warning of potential credit changes and captures the market’s daily view about a company’s perceived risk. |
|
|
Evaluate public company financials |
S&P Capital IQ Premium Financials provides standardized data for over 5,000 financial, supplemental, and industry-specific data items for over 150,000 companies globally, including over 95,000 active and inactive companies across multiple industries. Data is available at numerous frequencies and point-in-time representations of a financial period include press releases, original filings, and restatements. |
|
|
Investigate private companies |
Private Company Data covers 16 million private companies around the globe, 10 million private with financial statements, and 500,000+ early stage companies supported by data from Crunchbase. |
|
|
Streamline the uploading of proprietary financials |
ProSpread™ automatically extracts and spreads relevant data from PDF financial statements by leveraging Natural Language Processing combined with Optical Character Recognition. |
|
|
Create segment and company profiles for customized tear sheets |
RatingsDirect® is the official source for S&P Global Ratings’ credit ratings and research, and provides overviews of sector, industry, and company performance, along with market data, credit risk indicators, and dynamic visualization tools. |
Key Benefits
The Market Intelligence offering resonated well with the credit team that saw the opportunity to be both more efficient and more accurate by utilizing:
- A straightforward approach for calculating the PDs for public and private firms of different sizes.
- Batch scoring to easily generate a list of credit scores that broadly align with ratings from S&P Global Ratings to quickly screen tenants.
- An early-warning system with PDMS to react to changing market sentiment regarding different entities.
- Transparency to understand where the risk lies in a company’s fundamentals and where to focus attention for analysis.
- The Capital IQ platform to quickly retrieve data and do analysis with a wide array of advanced tools.
- Detailed user guides and technical documentation for the models, plus access to a 24x7 support group.
Click here for more information on some of data and tools discussed in this Case Study.
[1]“Commercial Real Estate | Is The U.S. Out Of Office For Good?”, S&P Global Ratings, December 3, 2020.
[2] & [4] S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence PD credit model scores from the credit ratings issued by S&P Global Ratings.
[3] All coverage numbers as of March 2021.