re : default rates per our discussion , see attached for impact of assumed recovery rates :
michael tribolet @ enron
12 / 11 / 2000 08 : 09 am
to : william s bradford / hou / ect @ ect , david gorte / hou / ect @ ect , vince j
kaminski / hou / ect @ ect , mark ruane / hou / ect @ ect
cc :
subject : default rates
please see below for my note to jeremy at the bottom and his reponse . i
have placed mark ruane ' s yields against a mid november default frequency
table . note there may be a slight shearing in dates , but the concept is
more important :
market implied cumulative default rates ( % ) :
1 year 5 year 10 year
aaa 0 . 51 5 . 74 14 . 54
aa 0 . 67 6 . 39 16 . 61
a 0 . 98 8 . 98 21 . 03
bbb 1 . 17 9 . 88 22 . 39
bb 3 . 27 18 . 62 37 . 51
b 4 . 65 24 . 21 46 . 27
s & p historical default rates ( % ) :
1 year 5 year 10 year
aaa 0 . 00 0 . 13 0 . 67
aa 0 . 01 0 . 33 0 . 90
a 0 . 04 0 . 47 1 . 48
bbb 0 . 21 1 . 81 3 . 63
bb 0 . 91 8 . 82 14 . 42
b 5 . 16 20 . 95 27 . 13
in looking at the one - year transition rates as a very rough proxy for how
many more defaults occur in a recession ( 1991 ) versus average ( 1981 - 1999 )
historical default rates ( % ) :
investment grade non - investment
grade
avg . 1981 - 99 0 . 07 4 . 21
1991
0 . 12 10 . 40
multiple 1 . 7 x
2 . 5 x
looking at where the market implied default rates divided by the historicals
default rates to obtain a " multiple " ( how much more severe than historical ) :
1 year 5 year 10 year
aaa infinite 44 . 2 x 21 . 7 x
aa 67 . 0 x 19 . 4 x 18 . 5 x
a 24 . 5 x 19 . 1 x 14 . 2 x
bbb 5 . 6 x 5 . 5 x 6 . 2 x
bb 3 . 6 x 2 . 1 x 2 . 6 x
b 1 . 1 x 1 . 2 x 1 . 7 x
on the 10 year historical figures , we need to be careful as the s & p static
pool figures show a definite seasoning ( lower defaults in late years probably
due to prepayment ) versus our contracts . secondly , the s & p figures have
withdrawn ratings , which usually mean they are stale , but loosing some
information content .
i will ask emy to set up a meeting to discuss further .
- - - - - - - - - - - - - - - - - - - - - - forwarded by michael tribolet / corp / enron on 12 / 11 / 2000
07 : 06 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : jeremy blachman @ ees on 12 / 10 / 2000 07 : 21 am
to : michael tribolet / corp / enron @ enron
cc :
subject : default rates
thanks . i would strongly suggest an offsite sooner than later with a handful
of the right people so that we can step back and design the right
architecture for looking at credit in our deals . it is broken , not clear ,
killing our velocity and true capabilities . we also need to look at staffing ,
skills sets , the credit reserve model etc . perhaps you should take a crack at
an agenda .
- - - - - - - - - - - - - - - - - - - - - - forwarded by jeremy blachman / hou / ees on 12 / 10 / 2000
07 : 08 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
michael tribolet @ enron
12 / 09 / 2000 03 : 51 pm
to : jeremy blachman / hou / ees @ ees
cc :
subject : default rates
i visited with vince kaminski for about 20 minutes today regarding the market
implied defaults rates and the disconnect in investment grade land . he is
seeing the same anomaly and agreed that we as a company need to revisit the
methodology employed in calculating the implied figures . i will follow
through and report back .
re : default rates
per our discussion , see attached for impact of assumed recovery rates :
michael tribolet @ enron
12 / 11 / 2000 08 : 09 am
to : william s bradford / hou / ect @ ect , david gorte / hou / ect @ ect , vince j
kaminski / hou / ect @ ect , mark ruane / hou / ect @ ect
cc :
subject : default rates
please see below for my note to jeremy at the bottom and his reponse . i
have placed mark ruane ' s yields against a mid november default frequency
table . note there may be a slight shearing in dates , but the concept is
more important :
market implied cumulative default rates ( % ) :
1 year 5 year 10 year
aaa 0 . 51 5 . 74 14 . 54
aa 0 . 67 6 . 39 16 . 61
a 0 . 98 8 . 98 21 . 03
bbb 1 . 17 9 . 88 22 . 39
bb 3 . 27 18 . 62 37 . 51
b 4 . 65 24 . 21 46 . 27
s & p historical default rates ( % ) :
1 year 5 year 10 year
aaa 0 . 00 0 . 13 0 . 67
aa 0 . 01 0 . 33 0 . 90
a 0 . 04 0 . 47 1 . 48
bbb 0 . 21 1 . 81 3 . 63
bb 0 . 91 8 . 82 14 . 42
b 5 . 16 20 . 95 27 . 13
in looking at the one - year transition rates as a very rough proxy for how
many more defaults occur in a recession ( 1991 ) versus average ( 1981 - 1999 )
historical default rates ( % ) :
investment grade non - investment
grade
avg . 1981 - 99 0 . 07 4 . 21
1991
0 . 12 10 . 40
multiple 1 . 7 x
2 . 5 x
looking at where the market implied default rates divided by the historicals
default rates to obtain a " multiple " ( how much more severe than historical ) :
1 year 5 year 10 year
aaa infinite 44 . 2 x 21 . 7 x
aa 67 . 0 x 19 . 4 x 18 . 5 x
a 24 . 5 x 19 . 1 x 14 . 2 x
bbb 5 . 6 x 5 . 5 x 6 . 2 x
bb 3 . 6 x 2 . 1 x 2 . 6 x
b 1 . 1 x 1 . 2 x 1 . 7 x
on the 10 year historical figures , we need to be careful as the s & p static
pool figures show a definite seasoning ( lower defaults in late years probably
due to prepayment ) versus our contracts . secondly , the s & p figures have
withdrawn ratings , which usually mean they are stale , but loosing some
information content .
i will ask emy to set up a meeting to discuss further .
- - - - - - - - - - - - - - - - - - - - - - forwarded by michael tribolet / corp / enron on 12 / 11 / 2000
07 : 06 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : jeremy blachman @ ees on 12 / 10 / 2000 07 : 21 am
to : michael tribolet / corp / enron @ enron
cc :
subject : default rates
thanks . i would strongly suggest an offsite sooner than later with a handful
of the right people so that we can step back and design the right
architecture for looking at credit in our deals . it is broken , not clear ,
killing our velocity and true capabilities . we also need to look at staffing ,
skills sets , the credit reserve model etc . perhaps you should take a crack at
an agenda .
- - - - - - - - - - - - - - - - - - - - - - forwarded by jeremy blachman / hou / ees on 12 / 10 / 2000
07 : 08 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
michael tribolet @ enron
12 / 09 / 2000 03 : 51 pm
to : jeremy blachman / hou / ees @ ees
cc :
subject : default rates
i visited with vince kaminski for about 20 minutes today regarding the market
implied defaults rates and the disconnect in investment grade land . he is
seeing the same anomaly and agreed that we as a company need to revisit the
methodology employed in calculating the implied figures . i will follow
through and report back .