Capital Markets: Risk Management

Rapid Ratings’ FHRs have a number of applications for risk management professionals in the financial markets.  The FHR™ provides an accurate, robust and continuous metric for measuring and benchmarking the financial health of corporations. Most of these corporations issue securities, but many do not. The company analysis involving both groups nevertheless remains valuable.  Although FHRs are not calibrated with default as a dependent variable, they have consistently mapped so well with default that we are able to provide an EPD (Estimated Probability of Default) for each corporate issuer.

FHRs are superior and more consistent harbingers of downside bond volatility than Merton-Structural Models, Altman-type Z-Scores, and most commonly used ROI and cash-flow models.  Beyond that, FHR downgrades of companies below investment grade generally precede those of traditional credit ratings agencies by 2.9 years or more and typically save bond investors more than 50% of the cost of waiting until that downgrade.

Risk managers also benefit by the sheer breadth of our public company coverage. Standard coverage currently encompasses more than 9,000 companies in 71 countries, a number that is growing daily.  Most of the remaining companies can be added to our coverage upon the request of any of our subscribers within 48 hours. Every company is rated on the same scale and with the same accuracy regardless of size, market liquidity, or whether or not it issues public debt.   Thus, the financial health risk of an organization’s entire corporate portfolio – both credit and equity - can be managed, measured and benchmarked accurately and consistently.

For risk managers also overseeing private company investments, FHRs are uniquely valuable.  Our ability to rate public and private companies on apples-to-apples bases through the same models is very valuable.  Performing risk assessments of portfolio companies with a common baseline risk assessment is a significant advantage to using different models, techniques and assumptions to cobble together a view of publics and privates in one portfolio.