Essential Intelligence: Models

CDO Suite of Products

The CDO Suite of Products includes the CDO Evaluator, Cash Flow Evaluator, Corporate Loan Data Table, and CDO Monitor. Our CDO Suite of Products provide analytical modeling and data capabilities for performing credit, cash flow and detailed asset analyses.

CDO Evaluator

The CDO Evaluator model allows users to evaluate pools of corporate, municipal or structured finance assets. Using a Monte Carlo simulation of defaults, the model incorporates S&P Global Ratings' default and correlation assumptions to estimate portfolio loss rates under different economic stresses commensurate with our rating levels. It is a stand-alone application with a Microsoft Excel user interface that communicates, via XML files, to a C++ engine that performs the simulations.

CDO Monitor

CDO Monitor is a tool used by CDO managers and trustees to determine compliance with the S&P Global Ratings' CDO Monitor Test as required by transaction documents.The S&P Global Ratings' CDO Monitor Test is intended to highlight potential changes in the credit quality of the underlying assets in a CDO, or changes in other collateral attributes, that could have an impact on transaction performance.

The CDO Monitor application is a version of our CDO Evaluator, which--by way of a transaction-specific input file--incorporates the output of our cash flow criteria and analytics for a given CLO transaction. Using the same Monte-Carlo simulation foundation as our CDO Evaluator and information from the cash flow analysis performed in connection with the initial rating process, CDO Monitor measures the overall credit quality of a portfolio and assesses potential changes in credit support for the rated notes.

While the CDO Monitor is based on our analytical tools for rating CLOs, it is not meant to be a predictor of rating actions. The test is intendedas a way to help collateral managers keep their transactions on course with some of the factors our corporate CDO criteria take into account and understand the incremental changes that trading activity may cause. In our surveillance process, we apply our rating methodology (typically including a full cash flow analysis) to the information contained in the transaction's trustee report and information we have on the credit quality of the underlying assets. The output of this cash flow analysis, along with our current economic outlook for corporate credit and other qualitative factors, is used as a basis for a review of the current ratings assigned to the CLO and helps us determine whether a rating action might be appropriate.

Cash Flow Evaluator

Cash Flow Evaluator is a cash flow model designed to analyse whether the rated security of a structured deal may receive timely or ultimate interest and principal payments at different liability ratings levels, after the application of collateral defaults and other stresses incurred by the collateral pool. The model is used to assign initial ratings for structured transactions, as well as for surveillance and for generating scenario analysis.

S&P Cash Flow Evaluator applies various combinations of stresses to the collateral portfolio of a structured transaction and examines whether the rated securities would likely receive timely or ultimate interest and principal payments in those scenarios. The stresses it applies may include certain collateral default levels and timing, collateral recovery levels and timing, andinterest-rate movements, as well as currency and prepayment stresses, when applicable.

Cash Flow Evaluator creates scenarios composed of different combinations of these stress factors (e.g. rising interest rate environment combined with low prepayments and back-ended defaults), and determines the maximum default rate that can be applied to the collateral in each scenario such that the rated liabilities always receive timely or ultimate interest and principal payments. This maximum default rate is referred to as the Break-even Default Rate (BDR).