Moody's Default Definition and its Application to Sovereign Debt

5 page (2540 word) report published Jun 29, 2011
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About Moody's Global Credit Research

...This Special Comment summarizes how Moody's determines when a default has occurred in the event of a sovereign debt exchange. Various market participants, such as central banks, auditors and ISDA, have different definitions as each has its own needs for determining when defaults occur. For example, responsibility for declaring whether or not a "credit event" has occurred that would trigger payments on outstanding credit default swaps rests with the ISDA Determinations Committee, not with credit rating agencies. Our default determinations are used to identify cases in which investors received something other than payment in full and on time (see appendix for our default definition). They underpin our rating systems and our default and loss studies, as required by our internal policy and regulation governing credit rating agencies. In the context of Greece, private sector participation (through rollovers, new lending or maturity extensions) appears increasingly likely as a precondition for...

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