Default Studies

Under the Accountability and Transparency in Rating Agencies Act (subtitle B) section (6) “Historical Default Rate Disclosures” the rules and regulations of the SEC require each NRSRO (rating agency) to establish and maintain, on a publicly accessible Internet Site, a facility to disclose, in a central database, the historical default rates of all classes of financial products rated by such organization.  The Rating Agencies have chosen to interpret section 6 in different ways.  For example, each rating agency looks at defaults across different time horizons.   As a result of these differences, the ratings lack comparability. Moreover, the rating agencies have defined defaults as being only events of non-payment of debt service, whereas technical defaults under bond covenants are excluded (even though bondholders may suffer significant losses in market price).

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