CREDIT POLICY
EXHIBIT 18
Annual Issuer Default Counts and Volume Totals by Geographical Region, 1986-2014
Year
Africa &
Middle East Asia Pacific
Issuer Counts
Europe
Latin America
Dollar Volumes (US$ mil)
North Africa &
America Middle East Asia Pacific
Europe
Latin America
North America
2011 2012 2013 2014
EXHIBIT 19
0 1 0 1
0 0 2 5
12 12 24 11
1 4 9 5
26 48 34 31
$0 $48 $0 $350
$4 $0 $546 $3,397
$10,047 $16,750 $24,096 $7,855
$358 $3,016 $9,249 $4,539
$26,166 $30,159 $21,562 $52,773
2014 Defaulted Corporates Bond and Loan Recoveries*
Company
Initial Default Type
Bank Loans 1st Lien
2nd Lien
Sr. Sec.
Bonds
Sr. Unsec.
Sr. Sub.
Sub.
African Bank Limited** Allen Systems Group, Inc. Alliance Bank Altegrity, Inc.
Bumi Resources Tbk (P.T.)
Cash Store Financial Services Inc. (The) China Forestry Holdings Co Ltd Codere S.A.
Endeavour International Corporation Energy Future Holdings Corp.*** Energy Future Intermediate Holding Company***
Espirito Santo Financial Group S.A. Espirito Santo Financiere S.A. Essar Steel Algoma Inc. Global Geophysical Services Harlan Laboratories, Inc.
payment default payment default payment default distressed exchange distressed exchange bankruptcy payment default payment default payment default bankruptcy bankruptcy bankruptcy bankruptcy payment default bankruptcy distressed exchange
100.4% 100.3% 83.5%
83.3%
50.0%
23.0% 22.3%
45.5% 106.3% 105.1%
100.0%
39.0%
54.0%
90.4%
78.5% 82.1%
47.5% 89.8%
32.0% 40.5% 3.1% 51.5%
5.0% 13.8% 84.3% 55.0%
67.0%
32.0% 78.5% 7.3% 82.5%
5.0%
82.0%
4.3%
29.5%
38.8%
Alion Science and Technology Corporation distressed exchange
Hidili Industry International Development distressed exchange Ltd
Hypo Alpe-Adria-Bank International AG Ideal Standard International S.A. iPayment Holdings, Inc. iPayment Inc.
James River Coal Company Metinvest B.V.
Midwest Vanadium Pty Ltd MModal Inc.
Momentive Performance Materials Inc.
distressed exchange distressed exchange distressed exchange distressed exchange bankruptcy distressed exchange payment default Bankruptcy Bankruptcy
21 MARCH 4, 2015
SPECIAL COMMENT: ANNUAL DEFAULT STUDY: CORPORATE DEFAULT AND RECOVERY RATES, 1920-2014
CREDIT POLICY
EXHIBIT 19
2014 Defaulted Corporates Bond and Loan Recoveries*
Company
Initial Default Type
Bank Loans 1st Lien
2nd Lien
Sr. Sec.
Bonds
Sr. Unsec.
Sr. Sub.
Sub.
Nelson Education Ltd.
New Sbarro Intermediate Holdings, Inc. New World Resources N.V. NexTag, Inc. NII Capital Corp.
NII International Telecom S.C.A. Northland Resources AB Phones4u Finance plc Phosphorus Holdco plc
Renhe Commercial Holdings Company Limited
Sorenson Communications, Inc. Texas Competitive Electric Holdings Company LLC USEC Inc.
Verso Paper Holdings LLC****
* Based on trading prices.
payment default Bankruptcy payment default distressed exchange payment default payment default Bankruptcy Bankruptcy Bankruptcy distressed exchange Bankruptcy Bankruptcy bankruptcy distressed exchange
83.7% 45.0%
29.9%
100.1% 79.2%
10.5%
0.2% 33.0%
91.0% 71.5%
60.6%
8.5%
23.8% 63.8%
3.0% 85.4%
9.6% 34.3%
72.0%
** African Bank was placed under curatorship. Retail deposits, which comprise less than 1% of the bank's creditors, will be met in full while wholesale deposits and senior debt will be transferred to a good bank at 90% of face value, implying a 10% ultimate loss. *** The secured bonds of EFH and EFIH are high as they have collateral from Oncor which is ring fenced from its distressed parent and affiliates. **** Verso Paper’s senior secured bond is a second lien debt.
EXHIBIT 20
Annual Defaulted Corporate Bond and Loan Recoveries*
Year
Loan 1st Lien
Sr. Sec.
Sr. Unsec.
Bond Sr. Sub.
Sub.
Jr. Sub.
All Bonds
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 72.0% 67.9% 60.6% 53.4% 67.6% 75.4%
72.5% 40.0% n.a. 83.6% 59.2% 71.0% 55.4% 46.5% 33.8% 48.4% 62.1% n.a. 69.3% 62.0%
35.8% 52.7% 49.4% 60.2% 51.1% 63.8% 45.2% 43.6% 38.2% 36.7% 49.2% 37.1% 53.7% 47.6%
48.1% 43.5% 67.9% 29.6% 46.8% 46.5% 33.4% 35.3% 25.5% 41.8% 49.4% 51.9% 29.6% 34.3%
30.0% 41.1% 44.3% 39.7% 41.4% 46.9% 33.8% 26.8% 18.9% 24.4% 38.0% 44.1% 38.0% 41.5%
n.a. n.a. n.a. 48.5% n.a. n.a. 36.5% 16.9% 10.7% 7.8% 13.5% n.a. 40.0% n.a.
35.3% 44.5% 45.5% 43.6% 47.4% 51.3% 38.8% 32.3% 25.6% 35.5% 45.9% 43.1% 45.6% 43.3%
22 MARCH 4, 2015
SPECIAL COMMENT: ANNUAL DEFAULT STUDY: CORPORATE DEFAULT AND RECOVERY RATES, 1920-2014
CREDIT POLICY
EXHIBIT 20
Annual Defaulted Corporate Bond and Loan Recoveries*
Year
Loan 1st Lien
Sr. Sec.
Sr. Unsec.
Bond Sr. Sub.
Sub.
Jr. Sub.
All Bonds
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
* Based on trading prices.
85.5% 78.8% 56.7% 73.5% 68.8% 64.9% 58.4% 73.4% 87.7% 83.8% 83.6% 68.6% 61.7% 53.6% 70.9% 70.9% 66.4% 75.1% 78.4%
47.6% 75.5% 46.8% 36.0% 38.6% 31.7% 50.6% 69.2% 73.3% 71.9% 74.6% 80.6% 54.9% 37.5% 62.5% 63.3% 51.2% 59.8% 59.5%
62.8% 56.1% 39.5% 38.0% 24.2% 21.2% 29.5% 41.9% 52.1% 54.9% 55.0% 53.7% 33.2% 36.9% 51.5% 41.3% 43.0% 43.8% 43.3%
43.8% 44.7% 45.0% 26.9% 20.8% 19.8% 21.4% 37.8% 42.3% 32.8% 41.4% 56.2% 23.3% 22.7% 37.5% 36.7% 33.7% 20.7% 46.9%
22.6% 33.1% 18.2% 35.6% 31.9% 15.9% 23.4% 12.3% 94.0% 51.3% 56.1% n.a. 23.6% 45.3% 33.7% 35.4% 37.3% 26.4% 38.8%
n.a. 30.6% 62.0% n.a. 7.0% 47.0% n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
41.5% 48.8% 38.3% 33.8% 25.1% 21.6% 29.7% 41.4% 58.5% 56.5% 55.0% 55.1% 33.9% 33.9% 51.8% 46.3% 44.7% 46.8% 47.8%
EXHIBIT 21
Average Sr. Unsecured Bond Recovery Rates by Year Prior to Default, 1982-2014*
Year 1
Year 2
Year 3
Year 4
Year 5
Aaa** Aa A Baa Ba B Caa-C
Investment Grade Speculative Grade All Rated
* Issuer-weighted, based on post default trading prices
n.a. 37.24% 31.77% 41.66% 45.68% 38.03% 37.47% 39.33% 38.22% 38.27%
3.33% 39.02% 42.68% 43.04% 44.24% 37.20% 37.51% 42.59% 38.00% 38.32%
3.33% 38.08% 44.49% 43.52% 43.26% 37.39% 37.37% 43.51% 38.05% 38.52%
61.88% 43.95% 43.92% 43.33% 42.66% 37.79% 37.58% 43.64% 38.36% 38.90%
75.58% 42.27% 43.69% 43.35% 42.32% 38.43% 37.65% 43.71% 38.72% 39.30%
** The Aaa recovery rates are based on five observations, three of which are Icelandic banks that have an average recovery rate of 3.33%.
23 MARCH 4, 2015
SPECIAL COMMENT: ANNUAL DEFAULT STUDY: CORPORATE DEFAULT AND RECOVERY RATES, 1920-2014
CREDIT POLICY
EXHIBIT 22
Average Cumulative Credit Loss Rates by Letter Rating, 1982 - 2014*
Year 1
Year 2
Year 3
Year 4
Year 5
Aaa Aa A Baa Ba B Caa-C Investment Grade Speculative Grade
All Rated
EXHIBIT 23
0.00% 0.02% 0.05% 0.11% 0.60% 2.29% 9.32% 0.06% 2.79% 1.12%
0.02% 0.05% 0.13% 0.30% 1.77% 5.59% 16.00% 0.17% 5.80% 2.29%
0.02% 0.09% 0.27% 0.52% 3.20% 8.91% 21.47% 0.31% 8.68% 3.37%
0.02% 0.16% 0.43% 0.79% 4.77% 11.80% 25.76% 0.47% 11.19% 4.29%
0.03% 0.25% 0.62% 1.06% 6.12% 14.35% 29.41% 0.66% 13.33% 5.05%
* Based on average default rates and senior unsecured bond recoveries measured on issuer-weighted basis.
Annual Credit Loss Rates by Letter Rating, 1982-2014*
Year
Aaa
Aa
A
Baa
Ba
B
Caa-C
Inv-Grade
Spec-Grade
All Rated
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.36% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.16% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.15% 0.14% 0.00% 0.00% 0.00% 0.00%
0.21% 0.00% 0.18% 0.00% 0.51% 0.00% 0.00% 0.35% 0.00% 0.18% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.08% 0.07% 0.32% 0.17% 0.79% 0.00% 0.00% 0.09% 0.00%
1.78% 0.43% 0.42% 0.56% 1.02% 1.01% 0.68% 1.77% 2.13% 3.14% 0.17% 0.38% 0.12% 0.40% 0.00% 0.09% 0.54% 0.88% 0.60% 1.19% 1.07% 0.62% 0.22% 0.00% 0.10%
1.43% 3.02% 3.45% 3.02% 5.66% 2.37% 3.39% 4.85% 9.89% 7.76% 4.69% 2.93% 1.91% 2.30% 0.54% 0.90% 2.43% 3.19% 4.74% 7.84% 3.29% 1.27% 0.42% 0.47% 0.55%
14.82% 19.70% 50.59% 0.00% 10.87% 7.25% 14.93% 14.11% 37.79% 28.50% 15.01% 17.32% 2.50% 4.82% 5.34% 6.60% 6.24% 11.49% 14.94% 25.18% 20.79% 13.58% 6.12% 3.05% 2.83%
0.14% 0.00% 0.05% 0.00% 0.12% 0.00% 0.00% 0.17% 0.00% 0.04% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.03% 0.03% 0.12% 0.12% 0.35% 0.00% 0.00% 0.04% 0.00%
2.28% 1.81% 1.70% 1.38% 2.77% 1.60% 1.95% 3.26% 6.35% 5.99% 2.65% 1.98% 0.99% 1.61% 0.64% 0.94% 1.99% 3.53% 5.07% 8.53% 5.90% 3.26% 1.23% 0.82% 0.84%
0.67% 0.46% 0.47% 0.38% 0.92% 0.58% 0.75% 1.35% 2.33% 1.96% 0.76% 0.56% 0.31% 0.54% 0.22% 0.34% 0.80% 1.50% 2.17% 3.43% 2.35% 1.19% 0.45% 0.33% 0.33%
24 MARCH 4, 2015
SPECIAL COMMENT: ANNUAL DEFAULT STUDY: CORPORATE DEFAULT AND RECOVERY RATES, 1920-2014
CREDIT POLICY
EXHIBIT 23
Annual Credit Loss Rates by Letter Rating, 1982-2014*
Year
Aaa
Aa
A
Baa
Ba
B
Caa-C
Inv-Grade
Spec-Grade
All Rated
2007 2008 2009 2010 2011 2012 2013 2014 Average Max Min
EXHIBIT 24
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00% 0.48% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.03% 0.48% 0.00%
0.00% 0.37% 0.14% 0.11% 0.00% 0.00% 0.00% 0.07% 0.03% 0.37% 0.00%
0.00% 0.35% 0.59% 0.00% 0.05% 0.05% 0.04% 0.04% 0.12% 0.79% 0.00%
0.00% 0.82% 1.47% 0.00% 0.12% 0.10% 0.29% 0.10% 0.67% 3.14% 0.00%
0.00% 1.43% 4.75% 0.25% 0.07% 0.28% 0.60% 0.14% 2.72% 9.89% 0.00%
2.82% 10.09% 21.95% 5.77% 5.11% 6.76% 5.38% 3.98% 12.61% 50.59% 0.00%
0.00% 0.37% 0.28% 0.04% 0.02% 0.02% 0.02% 0.04% 0.06% 0.37% 0.00%
0.45% 3.01% 8.41% 1.60% 1.21% 1.71% 1.69% 1.16% 2.68% 8.53% 0.45%
0.19% 1.51% 3.80% 0.69% 0.54% 0.81% 0.81% 0.59% 1.03% 3.80% 0.19%
* Based on issuer-weighted average default rates and issuer-weighted senior unsecured bond recovery rates.
2014 One-Year Letter Rating Migration Rates
From/To:
Aaa
Aa
A
Baa
Ba
B
Caa
Ca-C
WR
Default
Aaa Aa A Baa Ba B Caa Ca-C
EXHIBIT 25
97.778% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%
2.222% 88.696% 2.712% 0.000% 0.000% 0.000% 0.000% 0.000%
0.000% 6.957% 90.212% 4.342% 0.320% 0.075% 0.000% 0.000%
0.000% 0.000% 2.712% 88.750% 6.080% 0.075% 0.000% 0.000%
0.000% 0.000% 0.000% 2.303% 77.600% 3.219% 0.000% 0.000%
0.000% 0.000% 0.000% 0.132% 7.840% 75.524% 6.516% 0.000%
0.000% 0.000% 0.000% 0.000% 0.320% 7.186% 71.388% 4.348%
0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 1.558% 39.130%
0.000% 4.348% 4.245% 4.408% 7.680% 13.698% 15.297% 13.043%
0.000% 0.000% 0.118% 0.066% 0.160% 0.225% 5.241% 43.478%
Average One-Year Letter Rating Migration Rates, 1920-2014
From/To:
Aaa
Aa
A
Baa
Ba
B
Caa
Ca-C
WR
Default
Aaa Aa A Baa Ba B Caa Ca-C
86.500% 1.143% 0.068% 0.037% 0.007% 0.006% 0.000% 0.000%
7.892% 83.509% 2.719% 0.261% 0.078% 0.042% 0.016% 0.023%
0.842% 7.499% 84.207% 4.116% 0.446% 0.137% 0.022% 0.131%
0.157% 0.833% 5.725% 82.112% 5.887% 0.532% 0.145% 0.054%
0.033% 0.182% 0.715% 4.743% 73.528% 5.420% 0.656% 0.463%
0.001% 0.040% 0.119% 0.745% 6.894% 71.603% 8.186% 2.910%
0.001% 0.006% 0.029% 0.119% 0.599% 5.779% 64.528% 7.772%
0.000% 0.005% 0.008% 0.013% 0.059% 0.472% 3.439% 50.594%
4.573% 6.716% 6.319% 7.596% 11.325% 12.775% 12.284% 12.720%
0.000% 0.068% 0.091% 0.256% 1.177% 3.233% 10.724% 25.332%
25 MARCH 4, 2015
SPECIAL COMMENT: ANNUAL DEFAULT STUDY: CORPORATE DEFAULT AND RECOVERY RATES, 1920-2014