CORPORATE DEFAULT RATE: A PROPOSAL OF A DEFAULT INDEX FOR BRAZILIAN CORPORATE CREDIT MARKET BASED ON MOODY’S METHODOLOGY

Abstract

  The objective of this work is to present a default measurement proposal to the Brazilian corporate credit market. The name of this measure is Corporate Default Rate (CDR), which was designed taking into account many forms of default (such as unpaid bills, bounced checks, bankruptcy, filing for chapter 11 etc.) in an integrated way. The concept of CDR was based on the principles of default rate methodologies of credit market negotiated at the stock markets, especially at Moody's. The eventual implementation of CDR would help credit portfolio managers to evaluate and compare the default evolution of different segments of companies along many years. These segments may be formed by industry, region, rating etc. Measuring and registering defaults frequencies of public and private companies, according to CDR methodology, it would be easier to estimate future probabilities of companies default.