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Special Comment

Released January 2006


Revised March 2006
Contact

Phone

New York

David T. Hamilton
Praveen Varma
Sharon Ou
Richard Cantor

1.212.553.1653

Default and Recovery Rates


of Corporate Bond Issuers, 1920-2005
Summary

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Defaulted Issuer Count

Total Default Volume (USD Billions)

This is Moody's 19th annual survey of global corporate defaults and recovery rates. The report reviews the default,
recovery, and credit loss experience of corporate bond issuers for 2005 as well as the historical period since 1920.
Updated statistics on the default, loss, and rating transition experience of sovereign bond issuers are presented as well.
Briefly, we find:
A total of 32 corporate bond issuers rated as of January 1, 2005 defaulted on a total of USD 29 billion in
2005. Including issuers whose ratings were withdrawn prior to 2005, a total of 34 Moody's-rated issuers
defaulted on a total of USD 29.2 billion.
Defaults were concentrated in a handful of troubled industry sectors. The transportation (primarily airlines)
and automobile (auto parts) sectors experienced the highest numbers of defaulting issuers, with 6 and 4
defaults, respectively. The independent power sector experienced the highest default rate by dollar volume,
as two Calpine affiliates defaulted on USD 8.4 billion of bonds affected. Charter Communications Holdings (USD 6.9 billion) was 2005's largest default.
The default rate for all rated corporate issuers
fell to 0.6% in 2005 from 0.8% in 2004. As a
Annual Global Default Counts and Volume
percentage of dollar volume outstanding, the
default rate for all rated corporate issuers
Totals, 1980-2005
increased to 0.8% in 2005 from 0.5% in 2004.
$180
200
The speculative-grade default rate fell to
1.9% in 2005 from 2.4% in 2004 on an issuer
180
$160
Total Volume (Right Scale)
basis but increased to 3.8% from 2.6% on a
160
$140
Issuer Count (Left Scale)
dollar volume basis.
140
$120
Moody's global speculative-grade default rate
120
forecasting model predicts that the default
$100
100
rate will rise from its current 1.9% level to
$80
3.3% by the end of 2006.
80
$60
Recovery rates of defaulted corporate bonds
60
remained well above their 36% historical
$40
40
average. In 2005, the senior unsecured bond
$20
20
recovery rate averaged 56%.
0
$0
Since 2003, two Moody's-rated sovereign
bond issuers have defaulted: the Dominican
Republic and Uruguay.

Table of Contents
Page
Introduction .............................................................................................................................................. 5
Corporate Bond Defaults........................................................................................................................... 5
Default Rate Forecast And Model Performance ......................................................................................... 7
2005 Default Rate Forecast ............................................................................................................................... 7
Moody's Forecasting Model Performance........................................................................................................... 8

Credit Rating Accuracy Metrics ................................................................................................................. 9


Recovery In Default And Credit Loss Rates.............................................................................................. 12
Corporate Debt Recovery Rates........................................................................................................................ 12
Historical Credit Loss Rates ............................................................................................................................. 14

Sovereign Defaults ................................................................................................................................. 15


Sovereign Defaults........................................................................................................................................... 15
Sovereign Rating Transition And Default Rates................................................................................................. 15
Sovereign Bond Recovery Rates....................................................................................................................... 16

References ............................................................................................................................................. 18
Appendix A - Methodology And Data....................................................................................................... 19
Data Sources ................................................................................................................................................... 19
Estimated Senior Ratings................................................................................................................................. 19
Moody's Definition Of Default........................................................................................................................... 19
Default Rate Calculations................................................................................................................................. 20
Cohort Frequency ............................................................................................................................................ 20
Recovery Rate Estimates ................................................................................................................................. 21

Appendix B - Statistical Tables ............................................................................................................... 22


Appendix C - Revisions to Data and Exhibits ........................................................................................... 50

Moodys Special Comment

Table of Exhibits
Page
Exhibit 1 - Annual Default Counts & Volume Totals By Geographical Region, 1986-2005 .......................... 5
Exhibit 2 - 2005 Corporate Defaults By Industry Sector............................................................................. 6
Exhibit 3 - 2005 Corporate Default Rates By Whole Letter Rating .............................................................. 7
Exhibit 4 - 2005 Corporate Default Rates By Alphanumeric Rating ............................................................ 7
Exhibit 5 - 2005 Speculative-grade Default Rate Forecast......................................................................... 8
Exhibit 6 - Forecasted Vs. Realized Speculative-grade Default Rates, 2000-2005 ..................................... 9
Exhibit 7 - Average Cumulative Default Rates By Whole Letter Rating, 1920-2005.................................. 10
Exhibit 8 - Median And Average Rating Prior To Default, 1983-2005....................................................... 10
Exhibit 9 - 2005 Cap Curve Vs. 1983-2005 Average Cap Curve .............................................................. 11
Exhibit 10 - 1- And 5-year Accuracy Ratios By Cohort Year, 1983-2005 ................................................. 12
Exhibit 11 - Average Recovery Rates For Corporate Debt Obligations, 1982-2005................................... 12
Exhibit 12 - Correlation Between Defaults And Recoveries, 1983-2005................................................... 13
Exhibit 13 - Annual Average Sr. Unsecured Recovery Rates, 1982-2005................................................. 13
Exhibit 14 - Average Sr. Unsecured Recovery Rates By Rating Prior To Default, 1982-2005.................... 14
Exhibit 15 - Average Cumulative Credit Loss Rates By Whole Letter Rating, 1982-2005.......................... 15
Exhibit 16 - Average One-year Whole Letter Rating Transition Rates, 1983-2005 ................................... 16
Exhibit 17 - Average Cumulative Default Rates: Sovereigns Vs. Corporates, 1983-2005.......................... 16
Exhibit 18 - Sovereign Recovery Rate Estimates ..................................................................................... 17
Exhibit 19 - Moody's-rated 2005 Corporate Bond Issuer Defaults ........................................................... 22
Exhibit 20 - Moody's-rated Sovereign Bond Defaults, 1998-2005 ........................................................... 22
Exhibit 21 - 2005 Defaulted Corporate Bond Recoveries ......................................................................... 23
Exhibit 22 - 2005 Corporate Whole Letter Rating Migration Rates ........................................................... 25
Exhibit 23 - Average One-year Corporate Whole Letter Rating Migration Rates, 1920-2005 .................... 25
Exhibit 24 - Average One-year Corporate Whole Letter Rating Migration Rates, 1970-2005 .................... 25
Exhibit 25 - 2005 Corporate Alphanumeric Rating Migration Rates ......................................................... 26
Exhibit 26 - Average One-year Corporate Rating Migration Rates, 1983-2005........................................ 26
Exhibit 27 - Annual Moody's-rated Global Corporate Bond Issuer Default Counts, 1920-2005................ 27
Exhibit 28 - Annual Moody's-rated Global Corporate Bond Default Volume Totals, 1970-2005 ................ 28
Exhibit 29 - Annual Average Defaulted Bond Recovery Rates By Lien Position, 1982-2005 ..................... 29
Exhibit 30 - Annual Issuer-weighted Global Corporate Default Rates, 1920-2005.................................... 30
Exhibit 31 - Annual Issuer-weighted Corporate Default Rates By Whole Letter Rating, 1920-2005 .......... 31
Exhibit 32 - Annual Issuer-weighted Corporate Default Rates By Alphanumeric Rating, 1983-2005 ........ 32
Exhibit 33 - Average Cumulative Issuer-weighted Corporate Default Rates By Whole Letter Rating, 1920-2005.....33
Exhibit 34 - Average Cumulative Issuer-weighted Corporate Default Rates By Whole Letter Rating, 1970-2005.....33
Exhibit 35 - Average Issuer-weighted Corporate Default Rates By Whole Letter Rating, 1983-2005 ........ 34
Exhibit 36 - Average Cumulative Issuer-weighted Corporate Default Rates By Alphanumeric Rating, 1983-2005...35
Exhibit 37 - Average Sovereign Default Rates By Whole Letter Rating, 1983-2005.................................. 36
Exhibit 38 - Time To Default (Months) By Original Rating, 1970-2005..................................................... 36
Exhibit 39 - Annual Defaulted Issuer Counts And Total Dollar Volume...................................................... 36
Exhibit 40 - Annual Dollar Volume-weighted Corporate Default Rates By Whole Letter Rating, 1994-2005..............37
Exhibit 41 - Average Dollar Volume-weighted Corporate Default Rates By Whole Letter Rating, 1994-2005............37
Exhibit 42 - Cumulative Issuer-weighted Global Corporate Default Rates By Annual Cohort, 1970-2005 . 38
Moodys Special Comment

PAGE INTENTIONALLY LEFT BLANK

Introduction
The year 2005 was, by many conventional measures, a positive year for corporate credit quality. Default rates remained
low, recoveries on defaulted bonds were well above average, and aggregate credit rating revisions were favorable. Yet
the year was also marked by heightened concern among investors about corporate credit quality. Rating downgrades to
speculative-grade for major U.S. auto makers, defaults in a handful of widely-held industry sectors, and a rise in the
size of defaults have refocused attention on credit risk. This report, Moody's 19th annual corporate default study is,
therefore, timely.
In this report we document the default and recovery experience of corporate bond issuers for 2005 as well as for
the historical period since 1920. We also discuss Moody's default rate forecast for 2006, as well as review the performance of Moody's forecasting model. One of the important functions of Moody's default study is to gauge the accuracy of its ratings, which we present in a separate section. In this year's report we also include an update to Moody's
sovereign default statistics. Moody's methodology and detailed statistical tables are presented in two special appendices
at the end of the report.

Corporate Bond Defaults


The number of issuers defaulting on Moody's-rated corporate bonds fell for the fourth consecutive year, but the total
dollar volume of defaults rose sharply in 2005 (see cover chart). Thirty-two Moody's-rated corporate bond issuers
defaulted on a total of USD 29.0 billion of bonds in 2005, compared to 36 issuers and a total of USD16.5 billion in
2004. Including issuers whose ratings were withdrawn prior to 2005, a total of 34 Moody's-rated issuers defaulted on a
total of USD 29.2 billion.1
Four major trends characterize corporate defaults in 2005: U.S.-based issuers constituted the vast majority of
defaults; defaults were concentrated in a handful of troubled industries; the average size of default increased in 2005;
and the defaults of several large, widely-held issuers led to a greater perception of credit losses than suggested by the
aggregate statistics.

Exhibit 1 - Annual Default Counts & Volume Totals by Geographical Region, 1986-2005
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Africa &
Middle East
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4
0
0
1
0

Issuer Counts
AsiaPacific
Europe
0
0
0
4
1
0
0
0
0
0
0
2
7
8
5
15
3
2
0
0

0
0
0
0
0
1
0
0
1
0
0
0
0
8
3
16
29
9
2
2

Latin
America
0
0
0
0
0
0
0
0
0
0
0
1
0
2
0
4
15
3
0
1

North
America
34
30
29
48
82
71
29
22
14
31
17
21
44
81
108
145
98
66
33
29

Year

Africa &
Middle East

1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$2,758
$0
$0
$183
$0

Dollar Volumes
AsiaPacific
Europe
$0
$0
$0
$1,144
$200
$0
$0
$0
$0
$0
$0
$614
$1,929
$2,389
$1,006
$7,832
$1,112
$374
$0
$0

$0
$0
$0
$0
$0
$999
$0
$0
$510
$0
$0
$0
$0
$1,587
$713
$8,110
$39,445
$3,909
$1,809
$377

Latin
America
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$60
$0
$370
$0
$1,639
$8,895
$650
$0
$100

North
America
$3,937
$9,132
$5,425
$10,558
$19,948
$16,101
$6,275
$1,997
$1,560
$6,725
$4,042
$4,405
$8,742
$23,912
$27,157
$81,034
$115,251
$29,870
$14,475
$28,490

Exhibit 1 shows annual default counts and dollar volume totals by geographical region from 1986 to 2005. The
majority of corporate bond defaults are by issuers based in the U.S., although the proportion of defaults originating in
Europe, Asia, and Latin America has increased in recent years. In 2005, 29 of the year's 32 Moody's-rated defaults
were by U.S.-based bond issuers. The three non-U.S. defaults were Brazil's Banco Santos S.A. and Sweden-based
Concordia Bus AB and Concordia Bus Nordic AB.
1.

Including unrated bond defaults, forty-one issuers defaulted on a total USD 29.5 billion in 2005.

Moodys Special Comment

By default count, 2005's defaults were concentrated in the auto/auto parts (4 defaults) and transportation (6
defaults) sectors. Measured by total default volume, the independent power sector was the top defaulting industry sector at USD 8.4 billion. The cable sector, with bonds totaling USD 6.9 billion, followed by the airlines sector (USD 5.8
billion), were the second and third largest defaulting industry categories, respectively. Exhibit 2 summarizes the distribution of 2005 default counts and dollar volume totals by industry category.
Several large defaults in 2005 boosted the average size of default to USD 905 million, compared to USD 457 million in 2004. Among the largest defaulters are issuers that are widely held in investors' portfolios, including two
Calpine affiliates, Delphi Corporation, Delta Airlines and Northwest Airlines. Charter Communications Holdings
LLC was 2005's largest default by total bond volume at $6.9 billion. Exhibit 19 in Appendix B shows the complete list
of 2005 defaulters and their total bond default volumes.

Exhibit 2 - 2005 Corporate Defaults by Industry Sector


Industry
Transportation
Automobile*
Independent Power
Containers, Packaging & Glass
Machinery
Chemicals, Plastics & Rubber
Hotels, Casinos & Gaming
Retail
Metals & Mining
Nondurable Consumer Products
Healthcare, Education & Childcare
Construction, Building & Real Estate
Publishing, Cable & Broadcasting
Telecommunications
Electric Utilities
Miscellaneous
Oil & Gas
Financial (Non-Bank)
Banking
Total

No. Issuers

Total Volume ($Millions)

Default Rates (% of Issuers)

6
4
2
1
1
2
1
1
1
1
1
1
1
1
1
4
1
1
1

$6,027
$3,518
$8,426
$350
$250
$821
$50
$300
$93
$34
$185
$225
$6,862
$160
$155
$755
$265
$390
$100

4.01%
3.77%
2.38%
2.27%
1.80%
1.29%
1.20%
1.05%
1.04%
1.03%
0.83%
0.81%
0.61%
0.45%
0.39%
0.34%
0.28%
0.14%
0.12%

32

$28,967

0.65%

* Tower Automotive, which carried a Moody's Issuer rating but did not have rated bonds, is excluded from the total. If included, automobile sector default rate is 4.72%

The default rate for all rated corporate issuers fell to 0.6% in 2005 from 0.8% in 2004. As a percentage of dollar
volume, however, the default rate for all rated corporate issuers increased to 0.8% in 2005 from 0.5% in 2004. The
speculative-grade issuer default rate fell to 1.9% in 2005 from 2.4% in 2004 on an issuer basis but increased to 3.8%
from 2.6% on a dollar volume basis. By rating category, default rates remained below their historical annual averages
in 2005. Exhibit 3 presents default data for 2005 by whole letter rating, and Exhibit 4 shows the data by alphanumeric
rating.
Although defaults were generally concentrated in the lowest tiers of speculative grade in 2005, there were two
defaults by issuers that held investment-grade ratings within a year of their default date: Entergy New Orleans, Inc.,
and Delphi Corp. Entergy New Orleans, Inc., with bonds totaling $155 million, filed for Chapter 11 in the aftermath
of Hurricane Katrina. The bankruptcy filing of Delphi Corp., the largest auto parts maker in North America, came
after it failed to secure financing from General Motors Corp., its former parent and largest customer, and was unable
to negotiate sharp cuts in wages and benefits from the United Auto Workers union to restructure unprofitable U.S.
operations.

Moodys Special Comment

Exhibit 3 - 2005 Corporate Default Rates by Whole Letter Rating


Global
Rating as of
1 Jan. 2005
Baa
Ba
B
Caa-C
Investment Grade
Speculative Grade
All Corporates

Default
Count
2
0
8
22
2
30
32

Volume
(Millions)
$2,155
$0
$4,232
$22,579
$2,155
$26,812
$28,967

United States

Default Rate
(% Issuers)

Default Rate
(% Volume)

Default
Count

0.17%
0.00%
1.06%
8.27%
0.06%
1.92%
0.65%

0.20%
0.00%
1.51%
16.79%
0.07%
3.79%
0.75%

2
0
8
19
2
27
29

Volume
(Millions)
$2,155
$0
$4,232
$22,102
$2,155
$26,335
$28,490

Default Rate
(% Issuers)

Default Rate
(% Volume)

0.30%
0.00%
1.37%
8.48%
0.12%
2.36%
1.04%

0.31%
0.00%
1.71%
18.14%
0.14%
4.29%
1.24%

Exhibit 4 - 2005 Corporate Default Rates by Alphanumeric Rating


Global
Rating as of
1 Jan. 2005

Default
Count

Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa1
Caa2
Caa3
Ca-C
Investment Grade
Speculative Grade
All Corporates

0
1
1
0
0
0
0
3
5
6
9
4
3
2
30
32

Volume
(Millions)
$0
$2,000
$155
$0
$0
$0
$0
$3,010
$1,222
$9,079
$1,883
$683
$10,934
$2,155
$26,812
$28,967

United States
Default Rate
(% Issuers)
0.00%
0.24%
0.30%
0.00%
0.00%
0.00%
0.00%
1.03%
2.09%
4.24%
10.29%
23.53%
15.00%
0.06%
1.92%
0.65%

Default
Count
0
1
1
0
0
0
0
3
5
6
7
3
3
2
27
29

Volume
(Millions)
$0
$2,000
$155
$0
$0
$0
$0
$3,010
$1,222
$9,079
$1,506
$583
$10,934
$2,155
$26,335
$28,490

Default Rate
(% Issuers)
0.00%
0.40%
0.46%
0.00%
0.00%
0.00%
0.00%
1.34%
2.62%
5.15%
9.27%
21.43%
16.67%
0.12%
2.36%
1.04%

Default Rate Forecast and Model Performance


2005 DEFAULT RATE FORECAST
Moody's forecasting model for its global speculative-grade default rate predicts that the default rate will rise from its
current 1.9% level to 3.3% by the end of 2006. Exhibit 5 shows Moody's global speculative-grade default rate forecast
for 2006. Moody's point forecast indicates that the default rate will experience a gradual increase in 2006, remaining
below its long-run 5% average. The chart also shows the effect on the default rate if forecasted default rates are 50%
higher and lower than the model-generated estimates. In the event that the high default rate scenario occurs, the
resulting default rate is still near its historical average.

Moodys Special Comment

Exhibit 5 - 2005 Speculative-Grade Default Rate Forecast


9%
8%
7%
6%
5%
4%
3%
2%

Actual Rate

Lower

Point Forecast

Nov-06

Sep-06

Jul-06

May-06

Jan-06

Mar-06

Nov-05

Jul-05

Sep-05

May-05

Jan-05

Mar-05

Nov-04

Jul-04

Sep-04

Mar-04

May-04

Jan-04

Nov-03

Jul-03

Sep-03

May-03

Jan-03

0%

Mar-03

1%

Upper

The trends in the credit and economic variables that drive Moody's forecast are somewhat more mixed relative to
year ago readings. On the positive side, the credit quality of speculative-grade issuers - those most likely to default remained steady in 2005. The number of newly rated speculative-grade issuers slowed in 2005 to 219 from 248 in
2004. The ratio of rating downgrades to rating upgrades among issuers rated speculative grade increased to 1.1 in
2005 from 0.9 in the prior year, but remained below the 1.8:1 ratio of 2003. Additionally, favorable rating outlook
changes continued to outnumber negative outlook changes in 2005 by a 1.3:1 margin. Although down from 2:1 in
2004, the positive outlook changes - which have historically proven to forecast rating changes2 - do not suggest rapid
deterioration in credit quality in 2006.
On the negative side, consensus macroeconomic forecasts for 2006 predict that the rate of GDP growth in North
America and Europe will slow, impacting corporate profitability and the ability to service debt obligations. The flattening of the Treasury yield curve in 2005 from 198 basis points at the end of 2004 to just 36 basis points at the end of
2005 is an additional concern. Yield curve flattening is historically correlated with slowing economic growth and a rise
in corporate defaults. Lastly, as Moody's pointed out in its 2004 default study, the unprecedented increase in the number of new issuers rated Caa and below - nearly 1/3 of new speculative-grade rated issuers in 2004 - will eventually put
upward pressure on the aggregate default rate. In light of the average seasoning pattern of corporate defaults, this risk
may come home to roost near the end of 2006 and in 2007.

MOODY'S FORECASTING MODEL PERFORMANCE


Moody's introduced and began reporting the results of its speculative-grade default rate forecasting model in 1999.3
Moody's default rate forecasting model is a regression model that uses a set of credit and macroeconomic variables to
predict the 12-month-ahead default rate. With six years and a full credit cycle of data now available - and with expectations of higher future default rates in the coming years - it is valuable to review the performance of Moody's model.
Exhibit 6 gives a general picture of the performance of Moody's default rate forecasting model. The graph shows
the 12-month out-of-sample default rate forecast overlaid on the realized default rate. The gray shaded area corresponds to the NBER-dated recession in the U.S. Over the past six years, Moody's model has performed well at forecasting the default rate. Over the 2000-2005 time period, the realized and forecasted default rate have tracked each
other closely, with a correlation of 0.92 and mean-squared-error of 0.006. The model also correctly forecasted some
critical turning points: the sharp rise in the default rate that began in November 2000 and the peak in the default rate
in March of 2002.

2.
3.

See Hamilton and Cantor (2005).


See Keenan, et. al. (1999).

Moodys Special Comment

Exhibit 6 - Forecasted vs. Realized Speculative-Grade Default Rates, 2000-2005


12%
10%
8%
6%
4%

Out of Sample Forecast

Oct-04

Jul-04

Apr-04

Jan-04

Oct-03

Jul-03

Apr-03

Jan-03

Oct-02

Jul-02

Apr-02

Jan-02

Jul-01

NBER-Dated Recession

Oct-01

Apr-01

Jan-01

Oct-00

Jul-00

Apr-00

0%

Jan-00

2%

Realized Default Rate

However, the forecasted default rates generated by Moody's model have been less accurate in the period since
April 2003. This is partially attributable to the fact that Moody's forecasts are the product of a regression model, which
will tend to under-predict the default rate when it is rising and over-predict it when it is falling. A large part of the
error, though, is due to misleading signals produced by the variables included in the model in 2003. U.S. industrial
production experienced an average -0.8% year-over-year growth between April and August 2003, and the Treasury
yield curve also briefly flattened. The change in both of these variables suggested a rise in the default rate. It is also
worth noting that high yield investors also expected a rise in the default rate at the time. The high yield spread (a variable not included in Moody's forecasting model) widened from about 360 basis points in April 2003 to 650 basis points
in October 2003. Moody's expects that with more historical data its forecasting model performance record will continue to prove accurate and unbiased.

Credit Rating Accuracy Metrics


From its inception, one of the primary goals of Moody's annual default study has been to serve as a report card on the
accuracy of its long-term credit ratings. Over the years Moody's has developed several measurement criteria for evaluating the ability of its rating to predict defaults and credit losses. We review some of these performance measures in
this section.4
One of the simplest measures of rating accuracy is default rates by rating category. Moody's credit ratings have
been highly correlated with subsequent default rates over investment horizons as long as 20 years. Exhibit 7 shows that
average cumulative default rates between 1920 and 2005 increase significantly with lower credit ratings over all time
horizons. Indeed, the rate of default for issuers rated Caa is 40 times that of Aaa-rated issuers at a 20-year time horizon.
While the average default rate estimates for each rating category shown in Exhibit 7 are unbiased, it is important to
highlight the fact that defaults among highly rated investment-grade issuers have been extremely rare events. For
example, since 1920 only six corporate bond issuers that ever held an Aaa Moody's rating have defaulted. The tables of
annual and cumulative default rates in Appendix B show more detail for various historical time periods and investment
horizons.

4.

Moody's also publishes a separate, much more detailed report on ratings performance on a quarterly basis. See Mann and Parwani (2006).

Moodys Special Comment

Exhibit 7 - Average Cumulative Default Rates by Whole Letter Rating, 1920-2005


70%
60%
Caa-C

50%

B
Ba

40%

Baa
30%

A
Aa

20%

Aaa

10%
0%
1

11

13

15

17

19

Years from Cohort Date

A desirable performance objective of a rating system is to identify the weakest credits by assigning the lowest ratings to
issuers that ultimately default. Exhibit 8 shows that the median and average ratings of the 1,226 corporate issuers that have
defaulted since 1983 have been firmly in speculative grade as far as five years prior to default. Exhibit 8 plots the median and
average credit ratings of defaulting issuers from 60 months prior to default up to the default date (time zero).
For the historical period from 1983 to 2005, the median and average rating of defaulting issuers is Ba3. As the
default date draws near, the chart shows a clear deterioration in the median and average level of the credit rating, the
pace of which accelerates in the twelve months prior to default. The graph also shows that the pace of rating deterioration is measured: the median and average ratings of defaulters do not undergo multi-notch revision as they approach
the default date. Rating cuts generally proceed in one notch increments.

Exhibit 8 - Median and Average Rating Prior to Default, 1983-2005

Ba2
Ba3
B1
B2
B3

Average Rating 1983-2005


Median Rating 1983-2005

Caa1

Average Rating 2005


Caa2

Median Rating 2005

Caa3
60

10

55

50

Moodys Special Comment

45

40

35
30
25
Months to Default Date

20

15

10

In addition to assigning low ratings to issuers that ultimately default, the effectiveness of a rating system depends
on its ability to assign high credit ratings to issuers that do not default. In other words, an efficient rating system is able
to separate the low credit risks from the high credit risks.
A metric designed to measure this aspect of ratings performance is the cumulative accuracy profile (CAP) plot.
The CAP plot graphs the cumulative proportion of defaults from a portfolio against the proportion of issuers exposed
to the risk of default, sorted by riskiness. Exhibit 9 shows the CAP plots for the 2005 cohort of issuers as well as for the
1983-2005 time period.5 A rating system that conveyed no information about default risk would lie on the 45-degree
line; the further the CAP curve bows toward the top left corner, the better it is at identifying defaults in the riskiest rating categories.
Exhibit 9 shows that the CAP curve for 2005 lies above that of the 1983-2005 CAP curve over most of its range.
As Exhibit 3 showed, 22 of 2005's 32 defaults were by issuers rated Caa and below. This has the effect of improving the
2005 CAP curve relative to the historical CAP curve. However, the two investment-grade defaults in 2005 cause the
CAP curve for the year to cross below the historical curve over a section of its range, resulting in somewhat weaker relative performance.

Exhibit 9 - 2005 CAP Curve vs. 1983-2005 Average CAP Curve


1
B2 B1 Ba3 Ba2 Ba1
B3

Baa3Baa2 Baa1 A3

A2

A1 Aa1Aa2 Aa1Aaa

8
7

Caa1

6
Caa2

5
4

2005

3
Caa3
2

1983-2005

Ca

C
0
0

0.1

0.2
0.3
0.4
0.5
0.6
0.7
Cumulative Proporation of Rated Issuers

0.8

0.9

A summary measure of rating accuracy that can be derived from the CAP curve is the accuracy ratio. The accuracy
ratio (AR) is the ratio of the area between the CAP curve and the 45-degree line, and lies between negative and positive
one (like a correlation statistic).6 Exhibit 10 shows one- and five-year accuracy ratios for the 1983-2005 time period.
The graph suggests that the one-year accuracy ratio is positively correlated with the credit cycle: when defaults are
increasing, the accuracy ratio falls. At the five-year horizon this correlation is much less evident. In the short run, the
stability objective of Moody's rating system dampens rating changes; at longer time horizons, stability is unconstrained, and accuracy increases. As suggested by Exhibit 9 above, the one-year accuracy ratio for 2005 was somewhat
weaker relative to 2004 due to the two investment-grade rated defaults.

5.
6.

The 1983-2005 CAP curve was generated by pooling the annual cohort data.
A detailed description of CAP plots and the accuracy ratio is found in Cantor and Mann (2003).

Moodys Special Comment

11

Exhibit 10 - 1- and 5-Year Accuracy Ratios by Cohort Year, 1983-2005


1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
1-Year

0.60

5-Year

0.55

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

0.50

Recovery in Default and Credit Loss Rates


CORPORATE DEBT RECOVERY RATES
The positive credit environment in 2005 was also reflected in higher than average recovery rates7 for defaulted bonds
and bank loans. As default rates have steadily declined, recovery rates on defaulted instruments have been rising from
their 2001 nadir.8 The issuer-weighted average recovery rate for defaulted bonds 2005 was 55.9%, substantially
greater than the historical average of 35.9% but a bit lower than the highly elevated level, 59.9%, seen in 2004.
Recovery values for defaulted loans were also well above their historical averages in 2005, but preferred stocks
experienced recovery rates that were fairly similar to their long-run means. Exhibit 11 details issuer-weighted and
value-weighted recovery rates for 2005, 2004, and the long-term averages, for securities at various levels of the capital
structures of defaulting issuers.9

Exhibit 11 - Average Recovery Rates for Corporate Debt Obligations, 1982-2005


Issuer-Weighted

Bank loans
Sr. Secured
Sr. Unsecured
Bonds
Equipment Trust
Sr. Secured
Sr. Unsecured
Sr. Subordinated
Subordinated
Jr. Subordinated
All Bonds
Preferred Stock
All Debt Instruments

Value-Weighted

2005

2004

1982-2005

2005

2004

1982-2005

81.6

86.1

70
57.6

91.6

84.7

64.2
46.8

NA
77.9
55.2
33.6
95.0*

55.9
13.8
54.5

28.3
78.7
53.2
47.5
82.9**

59.9
50.3
63.3

59.3
51.9
36.0
32.4
31.8
23.9
35.9
11.3
37.7

NA
76.9
54.4
37.0
95.0*

54.3
7.2
53.5

28.3
85.7
67.8
43.8
78.4**

70.7
48.1
69.0

56.6
52.6
34.6
29.2
29.1
16.8
33.9
7.3
35.8

* Based on one observation


** Based on three observations

7.
8.

9.

12

Recovery rates are quoted as percentage of par.


Average recovery rates on defaulted instruments can be estimated in various ways. In most of our analysis, we focus on issuer-weighted mean recovery rates, which
correspond to the average recovery rate on a portfolio of bonds that is well diversified across issuers. Appendix A defines the recovery rate measures we use in this
section.
Exhibit 20 in the Appendix details recovery prices on instruments that defaulted in 2005. Exhibit 24 in Appendix B presents various descriptive statistics - sample
sizes, high, lows, medians, and standard deviations - for our long-term sample of recovery rates by type of capital instrument.

Moodys Special Comment

A number of factors may explain why average recovery rates have recently been elevated, such as a reduced supply
of or increased demand for defaulted assets, a reduction in high-yield spreads, cyclically higher asset values, or
increased risk preferences among vulture investors. Moody's and other researchers have documented that recovery
rates tend to be higher when default rates (and the commensurate supply of defaulted debt) are low. The resulting
negative correlation between default rates and recovery rates is apparent in Exhibit 12.

Exhibit 12 - Correlation between Defaults and Recoveries, 1983-2005


70%

Average Recovery Rate

60%

Recovery Rate = 0.538 - 7.6272 x Default Rate


R 2 = 0.6443

2004
2005
1997

50%

2003
40%

1991
1999

30%

1990
20%

2001

10%
0%
0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Annual Default Rate

A simple linear regression model shows an R2 of 0.64 between issuer-weighted average annual recovery rates and
annual corporate default rates. Although not shown here, similar but weaker correlations are also evident between
issuer-weighted average annual recovery rates and annual speculative-grade default rates and between value-weighted
recovery rates and annual aggregate default rates.
While recovery rates have been high in recent years, we are likely to see a decline in average recovery rates going
forward as default rates rise from their current lows. Over the 24-year period from 1982 to 2005, the issuer-weighted
and value-weighted recovery rates have fluctuated around a long-term mean of about 41%, as shown in Exhibit 13. In
past two years, recovery rates have exceeded the long-term mean, but between 1997 and 2002 - when default rates
were above average - they were below the long-term mean. If the default rates rise as forecasted by Moody's for 2006,
and beyond, a decline in recovery rates seems likely. Exhibit 24 in Appendix B presents annual recovery rates from
1982 to 2005 for instruments with different seniority in the capital structure.

90

Annual Value-Weighted Mean

80

Annual Issuer-Weighted Mean

70

Long-Term Issuer-Weighted Mean

60
50
40
30
20
10
0

1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Recovery Rate per 100

Exhibit 13 - Annual Average Sr. Unsecured Recovery Rates, 1982-2005

Moodys Special Comment

13

Exhibit 14 presents the historical relationship between ratings prior to default and average senior unsecured bond
recovery rates. The relationship between recovery rates and ratings prior to default is very weak for speculative-grade
ratings. When, however, issuers have defaulted within a few years of carrying investment-grade ratings, their senior
unsecured bond recovery rates have tended to be modestly higher than that of speculative-grade issuers.10 The difference, however, tends to diminish as the time to default increases - 48.9% versus 35.1% at a one-year horizon and
44.1% versus 41.7% at a five-year horizon.

Exhibit 14 - Average* Sr. Unsecured Recovery Rates by Rating Prior to Default, 1982-2005
Years Prior to Default

Aaa
Aa
A
Baa
Ba
B
Caa-Ca
Investment Grade
Speculative Grade
All Ratings

95.4
46.4
48.1
40.1
36.6
30.4
48.9
35.1
36.2

62.1
54.9
46.4
39.2
35.3
29.7
49.8
34.7
36.7

30.8
50.3
47.3
38.6
37.3
32.9
47.9
36.7
38.9

97.0
55.3
47.7
44.1
42.4
38.2
39.2
46.8
39.3
41.2

74.1
41.6
48.4
41.5
44.3
41.3
34.7
44.1
41.7
42.4

* Issuer-weighted average as percentage of par. See Appendix A for the definition.

There are a number of possible reasons why investment-grade issuers that default over a short horizon experience
higher average senior unsecured recovery rates. Most importantly, investment-grade issuers tend not to have much
secured bank or bond debt "in front of" senior unsecured debt; hence, the lower recovery rate on speculative senior
unsecured debt may reflect its more structurally subordinated position within the capital structure. Moreover, some
investment-grade defaults may reflect strategic defaults by companies battling litigation or, in the case of utilities, seeking rate relief from regulators.
It is important to recognize, however, that the majority of investment-grade issuers that do default, default many
years after being rated investment-grade. For example, although 8.9% of investment-grade issuers default within
twenty years, only 1.3% default in the first four years. As a result, there is little reason to expect that senior unsecured
recovery rates will be higher for issuers rated investment-grade in general, but only for those few investment-grade
issuers that default within a relatively short period of time of carrying an investmetn grade rating.

HISTORICAL CREDIT LOSS RATES


Moody's credit ratings are opinions on relative expected credit losses upon default. Credit losses are therefore a function of both probability of default as well as the severity of default (LGD). Exhibit 15 presents historical credit losses
for broad rating categories and shows that Moody's have consistently rank ordered issuers based on their expected
credit loss rates over investment horizons ranging from 1-year to 5-years.
It is worth noting that credit loss rates for very highly rated (Aaa- and Aa-rated) investment-grade issuers may be
over-estimated using price-based historical recovery rate data because (1) there are relatively few historical defaults
among Aaa- and Aa-rated issuers; and (2) price-based data is not available or underestimates recovery values for the
defaults that have occurred.11

10. These estimates may understate recoveries for very highly rated investment-grade issuers, such as Aaa- and Aa-rated issuers. Since 1980, there have only been
three Aaa-rated bond defaults (two of which were affiliated): Texaco Oil, Getty Oil, and Federated Department stores. Texaco and Getty bondholders ultimately recovered 100% of their claims.
11. See footnote 9.

14

Moodys Special Comment

Exhibit 15 - Average Cumulative Credit Loss Rates by Whole Letter Rating, 1982-2005
Cohort Rating
Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment Grade
Speculative Grade
All Corporates

Year 1

Year 2

(Percent)
Year 3

Year 4

Year 5

0.000
0.000
0.007
0.108
0.767
3.605
14.427
0.041
3.246
1.078

0.000
0.001
0.033
0.313
2.173
8.059
22.966
0.111
6.709
0.445

0.000
0.018
0.090
0.572
3.925
12.119
29.530
0.257
13.019
2.475

0.000
0.038
0.159
0.902
5.623
15.590
34.112
0.470
18.903
4.358

0.004
0.080
0.227
1.241
7.042
18.612
37.701
0.766
26.965
6.974

Sovereign Defaults
SOVEREIGN DEFAULTS
Since Moody's last report on sovereign bond issuer transition and default rates in 2003,12 two rated bond issuers - the
Dominican Republic and Uruguay - defaulted by imposing distressed exchanges on investors. In this section, we discuss these two defaults and provide updated statistics on sovereign rating transition, default, and recovery rates.
Dominican Republic: The Dominican Republic missed a bond interest payment in January 2004, but cured
that default within a 30-day grace period. After a number of additional late interest payments in the following
year, the country proposed a debt exchange to investors in April 2005 which would extend the existing maturities
on its two outstanding foreign currency bond issues and defer their cash interest payments for 2-years. In May,
roughly 95% of the investors in the bond coming due in 2006 and one coming due in 2013 agreed to extend the
maturity dates by additional five years at the original coupon rate and accept payment-in-kind (additional bonds)
in lieu of all the interest due in 2005 and half of the interest due in 2006.
Moody's views the exchange as tantamount to a default both because the maturity extension and the
interest deferral were needed to avoid outright default. The issuer's foreign-currency bond rating was kept
at B3 before and after the exchange because the realized loss severity of the exchange was modest, yet the
potential for further losses going forward remains material.
Uruguay: From mid-1997 to May 2002, Uruguay was rated investment-grade (Baa3). However, Argentina's
severe currency crisis led to concurrent debt servicing problems for Uruguay in 2002. Uruguay's total debt escalated to about 100% of GDP, or roughly USD 11 billion, with significant amount of bonds coming due in 2003
and 2004. To help restore debt sustainability, in April 2003 the authorities launched a debt exchange aimed at
lengthening the average maturity on the bonds (with no principal reduction). The exchange was completed
fairly soon after at the end of May, and overall participation rates averaged about 93%.
The debt restructuring involved three components: an external component covering bonds mainly issued
in Europe and the U.S. (amounting to some USD 3.6 billion), a Japanese component (covering Samurai
bonds worth about USD 250 million), and a domestic component (covering domestic currency bonds
worth about USD 1.6 billion). As a result of the maturity extension, Moody's classifies the offer as a distressed exchange default. The foreign-currency issuer rating for Uruguay was B3 when the offer was first
proposed and was maintained after exchange was completed.

SOVEREIGN RATING TRANSITION AND DEFAULT RATES


Exhibit 16 presents one-year letter rating transition rates for sovereign bond issuers. These statistics indicate that sovereign rating transition rates are comparable to those of corporate issuers (see Exhibit 24 in Appendix B); however, the
ratings on Baa and Caa-C sovereign issuers appear somewhat less stable than their corporate counterparts.13

12. See Varma (2003).


13. When considering these statistics, readers should keep in mind that underlying sample size is very small. As of January 2006, Moody's rated only 94 sovereigns.
Moreover, some rating transitions reflect changes in the underlying reference rating rather than changes in any specific rating, as described in Appendix A, Moody's
estimates long-term senior unsecured sovereign rating histories by tracking the lower of its foreign or domestic currency ratings.

Moodys Special Comment

15

Exhibit 16 - Average One-Year Whole Letter Rating Transition Rates, 1983-2005


(Percentage of Issuers)
Beginning of
Year Rating
Aaa
Aa
A
Baa
Ba
B
Caa-C

Aaa

Aa

Baa

End of Year Rating


Ba

Caa-C

Default

WR

94.65
4.43
0.00
0.00
0.00
0.00
0.00

5.21
92.28
2.90
0.00
0.00
0.00
0.00

0.00
1.38
91.73
8.88
0.00
0.00
0.00

0.00
0.00
3.19
79.02
4.28
0.00
0.00

0.00
0.00
0.52
6.85
85.93
3.50
0.52

0.00
0.00
0.00
0.85
8.29
87.18
28.18

0.00
0.00
0.00
0.00
0.73
2.09
53.12

0.00
0.00
0.00
0.00
0.62
3.89
18.18

0.15
1.90
1.66
4.40
0.15
3.34
0.00

The fairly high annual upgrade rate, at 29%, for Caa-C sovereign issuers is much higher than the upgrade rate for
Caa-C corporate issuers, which is in single digits. One explanation for the higher upgrade rate is that many of the
Caa-C rated sovereigns were first assigned these ratings after executing a distressed exchange. So, it is not surprising
that a significant percentage of those cases were upgraded over time. Downgrades of sovereigns into the Caa rating
category have, in fact, almost always been followed by a default.14 Exhibit 20 in Appendix B presents the complete list
of all sovereign issuers that have defaulted on rated bonds since 1989.
Exhibit 17 presents average cumulative Baa, Ba, and B default rates for sovereign and corporate bond issuers for
the 1983-2005 time period. Default rates for sovereign bond issuers have generally been lower - roughly half at the
five-year and ten-year horizons - than the default rates for similarly rated corporate issuers during the same time
period. Exhibit 37 in Appendix B shows detailed cumulative default rates for sovereign bond issuers.

Exhibit 17 - Average Cumulative Default Rates: Sovereigns vs. Corporates, 1983-2005


50%
45%
B Corporate
40%
35%

B Sovereign

30%
25%
Ba Corporate
20%
15%

Ba Sovereign

10%
5%
0%
Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

SOVEREIGN BOND RECOVERY RATES


Exhibit 18 presents two types of estimates of recovery rates on defaulted sovereign bonds. The first method reports
the average trading price on a sovereign's bonds thirty days after its initial missed interest payment, or in cases in which
the initial default event was the distressed exchange offer, we report the average price shortly before the distressed
exchange was completed.

14. Of the 10 sovereign issuers that ever held a Caa rating, only two - Romania and Belize - have not defaulted either before or after.

16

Moodys Special Comment

The second method is based on the ratio of the value of the old securities to new securities received in exchange by
discounting their promised cash flows using the yield to maturity implicit in the price of old securities at the time of
the announcement of the exchange offer.15 The sample presents recovery estimates for all rated bond defaulters,
except for Venezuela for whom we were unable to obtain market quotes on its defaulted domestic currency bonds,
although anecdotal evidence suggests recovery rates on its bonds were high. The sample also includes estimated
recovery rates on two defaulting issuers, Grenada and Ivory Coast, whose bonds were not rated by Moody's.

Exhibit 18 - Sovereign Recovery Rate Estimates


Country
Argentina
Dominican Republic
Ecuador
Grenada*
Ivory Coast*
Moldova
Pakistan
Russia
Ukraine
Uruguay
Average

Default Year
2001
2005
1999
2004
2000
2001
1998
1998
2000
2003

Average Price**

Fair Value Price***

33
92
44
65
18
66
65
18
69
66
54

30
95
60
NA
NA
NA
65
50
60
85
64

* Not rated by Moody's at the time of default.


** 30-day post-default price when initial default event was a missed payment; price before exchange when intial event was an exchange offer
*** Ratio of the present value of the new instruments relative to the PV of instruments for which they were exchanged, discounted by the yield
to maturity observed just prior to the exchange

Contrary to market perceptions, recovery rates on sovereign bonds have on average been higher than those on corporates on average. The market's view that sovereign bond recovery rates are lower, everything else equal is, however,
not wholly without basis. The two largest defaulters, Russia and Argentina, imposed large losses on their investors.
Recovery rates for issuers that defaulted in the past three years have been higher than those that defaulted earlier
in the sample. This rise is consistent with higher average recovery rates experience by defaulted corporate bonds issuers during the same time period. The overall average issuer-weighted recovery rate for sovereign issuers was 53%,
about 30% higher than reported in Varma (2003).

15. This method, reported by the Bank of England (2005), uses the discount rate on the old bonds at the time of the announcement of exchange offer, which could be
months after the first default event. For example, in Russia's case, Moody's recorded the default when the first payment was missed; whereas, the distressed
exchange was announced more than a year later. With the announcement of an exchange offer, some uncertainty is resolved and the yield on existing instruments
may change which will impact the PV of new instruments. The appropriateness of this method may also depend on the validity of an implied assumption that the yield
curve is flat over the period of maturity extension. Other methods are also discussed in Stuzenneger and Zettelmeyer (2005).

Moodys Special Comment

17

References
Bank of England (2005) Financial Stability Review, June 2005
Cantor and Mann (2003) "Measuring the Performance of Corporate Bond Ratings," Moody's Global Credit Research,
April.
Cutler and Ederer (1958) "Maximum Utilization of the Life Table Method in Analyzing Survival," Biostatistics, December.
Hamilton and Cantor (2004) "Rating Transition and Default Rates Conditioned on Outlooks", Journal of Fixed Income,
September.
Keenan, S., Sobehart, J., and D. T. Hamilton (1999) " Predicting Default Rates: A Forecasting Model for Moody's
Issuer-Based Default Rates," Moody's Global Credit Research, August.
Mann, C. and K. Parwani (2006) "The Performance of Moody's Corporate Bond Ratings: December 2005 Quarterly
Update," Moody's Global Credit Research, January.
Stuzenneger, F. and J. Zettelmeyer (2005) "Haircuts: Estimating Investor Losses in Sovereign Debt Restructurings,
1998-2005," IMF Working Paper (WP/05/137).
Varma, P. (2003) "Sovereign Bond Defaults, Rating Transitions, And Recoveries (1985-2002)," Moody's Global Credit
Research, February.

18

Moodys Special Comment

Appendix A - Methodology and Data


DATA SOURCES
Moody's bases the results of this study on its proprietary database of ratings and defaults for corporate bond issuers.
Municipal debt issuers, structured finance transactions, private placements, and issuers with only short-term debt ratings or only bank loan ratings are excluded unless otherwise noted. In total, Moody's data covers the credit experiences
of over 16,000 corporate issuers that sold long-term public debt at some time between 1920 and 2005. As of January 1,
2005 over 5,000 corporate issuers held a Moody's long-term bond rating.
Moody's database of corporate defaults covers over 3,600 long-term bond defaults by issuers both rated and nonrated by Moody's. Additional data sources, such as Lehman Brothers index data, supplemented Moody's proprietary
data in the construction of the aggregate dollar volume-weighted default rates. Defaulted bond pricing data was
derived from Bloomberg, Reuters, and TRACE. The majority of these market quotes represent an actual bid on the
debt instrument, although no trade may have occurred at that price. Over the 1982-2005 period, the dataset includes
post-default prices for nearly 2,500 defaulted instruments issued by over 1,200 defaulting corporations. Moody's
makes the 1970-2005 credit rating, default, and recovery rate data used in this study available through its Default Risk
Service (DRS) database.

ESTIMATED SENIOR RATINGS


The credit ratings used in Moody's annual default studies do not refer to the ratings of any specific debt obligations.
Rather, they are notional, issuer-level ratings derived from each issuer's outstanding rated bonds. The resulting ratings
are called estimated senior unsecured ratings or, more concisely, estimated senior ratings. Estimated senior ratings are
derived by a statistical algorithm: first, the rating on each company's senior unsecured bonds is used; if an issuer does
not have any rated senior unsecured bonds, the estimated senior rating is derived by statistically implying such a rating
on the basis of rated subordinated or secured bonds, or senior implied ratings.
Deriving estimated senior ratings is necessary because Moody's credit ratings for corporate bonds are based on
expected credit loss, which is comprised of (1) the expected probability of default, as well as (2) the expected severity
(loss of principal and interest) in the event of default. Therefore, in order to calculate historical default rates by rating
category, which are estimates of the expected default probability component, one must hold severity considerations
constant. In most cases, estimated senior ratings will yield an assessment of default risk that is relatively unaffected by
special considerations of collateral or of position within the capital structure.

MOODY'S DEFINITION OF DEFAULT


Moody's definition of default includes three types of credit events:
1. A missed or delayed disbursement of interest and/or principal, including delayed payments made within a grace
period;
2. Bankruptcy, administration, legal receivership, or other legal blocks (perhaps by regulators) to the timely payment of interest and/or principal; or
3. A distressed exchange occurs where: (i) the issuer offers bondholders a new security or package of securities that
amount to a diminished financial obligation (such as preferred or common stock, or debt with a lower coupon
or par amount, lower seniority, or longer maturity); or (ii) the exchange had the apparent purpose of helping the
borrower avoid default.
The definition of a default is intended to capture events that change the relationship between the bondholder and
bond issuer from the relationship which was originally contracted, and which subjects the bondholder to an economic
loss. Technical defaults (covenant violations, etc.) are not included in Moody's definition of default.
In Moody's default research, secondary and tertiary defaults are reported only after the initial default event is
believed to have been cured. This is to ensure that multiple defaults related to a single episode of financial distress are
not over-counted.16

16. For example, a bankruptcy that follows a missed interest payment is not counted as a separate default event. When an issuer has re-entered the pool of eligible issuers (where a previous event of default has been cured), the rating associated with a subsequent default is the one on the given cohort formation date; if the analysis is
based on 'initial' ratings rather than cohort ratings, the rating used is the one after the initial default, Thus, an issuer that experiences two defaults in its lifetime has two
'initial' ratings.

Moodys Special Comment

19

DEFAULT RATE CALCULATIONS


Moody's employs the standard method used by statisticians to analyze cumulative survival (and hence default) probabilities using discrete time data.17 In calculating default rates for individual cohorts, Moody's adjusts the denominator of the default rate downward for issuers whose ratings are withdrawn to account for survivorship bias. Once an
issuer's rating is withdrawn, the observation of its future default experience is treated as a censored observation.18
By way of example, if while measuring a 10-year CDR an issuer's rating was withdrawn in year 5, certainty regarding
default history can only be gained for the period of time between the time the cohort was formed and year 5. The
issuer would therefore be considered "exposed" to default for 5 years, not 10 years.
Cumulative default rates (CDRs) are calculated from marginal default rates (MDRs), which represent the probability
that an issuer that has survived in the sample through a particular date will default over a short interval following that
date. By definition, the denominators used to estimate MDRs must adjust for withdrawals and defaults prior to that
date. We use the following formula for calculating MDRs, which also makes a very minor adjustment (and inconsequential) adjustment for the withdrawals that occur during the short interval in question.
The marginal default rate, d(t), is the ratio of the number of defaulting issuers in period t, x (t), divided by the
number of issuers exposed to the risk of default in period t. The denominator of the marginal default rate is adjusted
for issuers whose ratings have been withdrawn, w(t):

d (t ) =

x(t )
n(t ) x(t 1) 12 [ w(t ) + w(t 1)]

Cumulative default rates, D(T), for horizons of length T, for specific cohorts are built up from the MDRs as follows:
T 1

D (T ) = d1 + (1 d1 )d 2 + (1 d1 )(1 d 2 )d 3 + ... + (1 d t )dT


t =1

For example, the two year cumulative default rate is the sum of the marginal default rate in year one (d1) and the
marginal default rate in year two (d2) for issuers that survived past year one, (1 - d1).
When calculating average CDRs over many cohorts, the above formula is also used, but the MDRs are constructing by
averaging across cohorts. In this manner, when estimating long-term CDRs, information from recent cohorts need
not be ignored entirely. Rather, near-term cohorts are used to obtain more precise estimates of the near-term marginal
default rates used in deriving long-term CDRs.
Our default rate calculation method has two important advantages over the more simplistic so-called static pool
method used by some researchers:
If you expect to have a ten-year exposure to an issuer, you want an estimate of the risk of ten years of exposure. Moody's method produces an unbiased estimate of this risk, whereas the static pool method produces
downwardly biased default rates estimates since it implicitly assumes that issuers that leave the sample
would never have defaulted.
Moody's method uses all the available information about default/survival in the dataset to estimate longterm CDRs, including the information from recent cohorts, not just cohorts that have history that span the
entire horizon of the CDR calculation. Moody's method uses such information in estimating short-term
MDRs that enter into the long-term CDR calculations, whereas the static approach simply ignores that
data.19

COHORT FREQUENCY
The historical average default and rating migration rates reported in this study are calculated by taking the weighted
average of groups of issuers formed at equally spaced time intervals, called cohorts. For example, the average one-year
rating migration rates for the 1970-2005 time period (shown in Exhibit 24) are calculated by forming groups of issuers
17. The classic reference is Cutler and Ederer (1958). This approach is the discrete time analogue of the continuous hazard rate model which is familiar to most economists.
18. Moody's does attempt to follow these companies subsequent experience and occasionally becomes aware of instances that issuers with withdrawn ratings default. It
is not possible, however, to use this information in an unbiased way because we do not know what happens to all withdrawn issuers. Moreover, issuers that have their
ratings withdrawn because they no longer have any debt outstanding and are liquidated cannot be used to gain insight to the question: what would happen if I have
credit exposure to an issuer beyond that date of liquidation?
19. For example, Moody's 10-year cumulative default rate is not calculated only using issuers with 10 years of history available. Issuers with one year of history contribute
to the first year marginal default rate; issuers with two years of history contribute (up to) the second year marginal default rate, etc.

20

Moodys Special Comment

based on their ratings held at the beginning of each month between 1970 and 2005, tracking the rating changes over
the subsequent twelve months, and then taking the weighted average. The weights correspond to the number of issuers in each cohort and rating category.
The selection of cohort frequency is somewhat arbitrary. In previous years, Moody's annual default study calculated historical average default and rating migration rates using cohorts formed at annual frequencies. In this year's
report, we use a monthly cohort periodicity. Monthly cohorts have the advantage of capturing rating changes that
occur in small time intervals that may be missed at an annual cohort frequency.

RECOVERY RATE ESTIMATES


Moody's generally measures recovery rates in this report using bid prices on defaulted debt obligations observed
roughly 30 days after the date of default, specifically measured as a ratio of prices relative to par. Using a post-default
price to measure loss severity parallels common practice in the credit default swaps market. Moreover, recovery rates
measured in this way are most relevant for the many cash bond investors who liquidate their holdings shortly after
default as required by their portfolio governance rules or their own investment objectives. For investors holding
defaulted securities until ultimate resolution, prices observed shortly after default are generally accepted as the market's discounted expected ultimate recovery rates.
The alternative approach - measuring ultimate recoveries realized in bankruptcy resolutions - presents a number
of estimation challenges including estimation of the discount rate to apply to each cash-flow, assumptions about the
value of certain payments made during the process, and estimates of values of securities used to pay creditor claims,
which may include illiquid new securities (e.g., equity and derivative instruments) as well as physical assets.
The table below defines the various ways Moody's sometimes calculates and presents its recovery rate estimates.
For the purposes of measuring expected loss rates, we rely on issuer-weighted mean recovery rates.
Term

Definition

Issuer-Weighted Mean Recovery Rates

Issuer-weighted mean recovery rates are derived by estimating mean recovery rates for each
issuer, then averaging them across issuers. They are useful for predicting recovery rates for
portfolios that are well diversified across issuers.

Value-Weighted Mean Recovery Rates

Value-weighted recovery rates represent the average of recovery rates on all defaulted
issuers, weighted by the face value of those issues. These estimates are useful for predicting
recovery rates on the market portfolio.

Issuer-Weighted Median Recovery Rates

Issuer-weighted median recovery rates are estimated as median of issuer-weighted recovery


rates and are used for predicting the most likely recovery rate for a randomly selected issuer.

Issue-Weighted Mean Recovery Rates

Issue-weighted recovery rates are estimated using recovery rates for each issue and taking
the average of all issues. While this measure is widely reported, it is useful only for
predicting the average recovery rate on a portfolio of default bonds diversified across issues
but without reference to issuer or issue size.

Moodys Special Comment

21

Appendix B - Statistical Tables


Exhibit 19 - Moody's-Rated 2005 Corporate Bond Issuer Defaults
Company

Country

Default Date

Charter Communications Holdings, LLC


Calpine Corporation
Delta Air Lines, Inc.
Delphi Corporation
Calpine Generating Co LLC
Northwest Airlines, Inc.
Collins & Aikman Products Co.
Foamex L.P.
R.J. Tower Corporation
Refco Group LTD., LLC
Northwest Airlines Corporation
Anchor Glass Container Corporation
Pliant Corporation
Winn-Dixie Stores Inc
Salton, Inc.
Star Gas Partners, L.P.
EaglePicher Incorporated
Inland Fiber Group LLC
Concordia Bus, AB
O'Sullivan Industries, Inc.
Curative Health Services, Inc.
Concordia Bus Nordic AB
IWO Holdings
Entergy New Orleans, Inc.
Fedders North America, Inc.
Allied Holdings, Inc.
Levitz Home Furnishings, Inc.
FLYi, Inc.
Tower Automotive, Inc.
Brown Jordan International, Inc.
Banco Santos S.A.
WHX Corporation
Romacorp, Inc.
Boyds Collection, Ltd.

United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Sweden
United States
United States
Sweden
United States
United States
United States
United States
United States
United States
United States
United States
Brazil
United States
United States
United States

9/27/2005
12/20/2005
9/14/2005
10/8/2005
12/20/2005
9/14/2005
5/17/2005
8/15/2005
2/1/2005
10/17/2005
9/14/2005
8/8/2005
12/1/2005
2/22/2005
6/15/2005
12/5/2005
4/11/2005
5/15/2005
2/15/2005
7/15/2005
11/1/2005
1/31/2005
1/4/2005
9/23/2005
8/31/2005
7/31/2005
10/11/2005
2/15/2005
2/2/2005
2/15/2005
1/14/2005
3/8/2005
11/6/2005
10/16/2005

Total Volume*

In Jan. 1 Cohort**

$6,862
$6,721
$3,947
$2,000
$1,705
$1,203
$915
$500
$453
$390
$375
$350
$321
$300
$275
$265
$250
$225
$207
$195
$185
$169
$160
$155
$155
$150
$130
$125
$125
$105
$100
$93
$50
$34

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
Yes

* USD Millions
** Issuers in the January 1 cohort are included in the 2005 default rates

Exhibit 20 - Moody's-Rated Sovereign Bond Defaults, 1998-2005


Country
Pakistan
Russia
Ukraine
Venezuela
Ecuador
Peru
Ukraine
Argentina
Moldova
Uruguay
Dominican Republic
* USD Millions

22

Moodys Special Comment

Default Date
November 1998
August 1998
September 1998
July 1998
August 1999
September 2000
January 2000
November 2001
June 2001
May 2003
April 2005

Total Volume*
$750
$73,336
$1,422
$270
$6,603
$4,870
$1,063
$82,268
$145
$5,500
$1,100

Exhibit 21 - 2005 Defaulted Corporate Bond Recoveries*


Company

Country

Seniority

Allied Holdings, Inc.


Anchor Glass Container Corporation
Boyds Collection, Ltd.
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Charter Communications Holdings, LLC
Collins & Aikman Products Co.
Collins & Aikman Products Co.
Curative Health Services, Inc.
Delphi Corporation
Delphi Corporation
Delphi Corporation
Delphi Corporation
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
Delta Air Lines, Inc.
EaglePicher Incorporated
Entergy New Orleans, Inc.
Entergy New Orleans, Inc.
Entergy New Orleans, Inc.
Entergy New Orleans, Inc.

United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States

Sr. Unsecured
Sr. Secured
Subordinated
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Subordinated
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Secured
Sr. Secured
Sr. Secured

Coupon
8.63%
11.00%
9.00%
9.63%
10.75%
11.75%
10.25%
11.13%
13.50%
10.00%
8.63%
9.92%
10.00%
10.00%
11.75%
12.13%
10.75%
12.88%
10.75%
6.55%
6.50%
6.50%
7.13%
7.70%
7.90%
9.75%
8.30%
10.00%
9.25%
10.13%
10.38%
9.00%
9.25%
8.63%
8.56%
8.00%
10.38%
10.13%
10.38%
9.75%
3.88%
4.98%
5.25%
6.75%

Maturity
10/1/2007
2/15/2013
5/15/2008
11/15/2009
10/1/2009
1/15/2010
1/15/2010
1/15/2011
1/15/2011
4/1/2009
4/1/2009
4/1/2011
5/15/2011
5/15/2011
5/15/2011
1/15/2012
12/31/2011
8/15/2012
5/1/2011
6/15/2006
5/1/2009
8/15/2013
5/1/2029
12/15/2005
12/15/2009
5/15/2021
12/15/2029
8/15/2008
12/27/2007
5/15/2010
2/1/2011
5/15/2016
3/15/2022
12/12/2005
1/30/2006
12/15/2007
12/15/2022
5/15/2010
2/1/2011
9/1/2013
8/1/2008
7/1/2010
8/1/2013
10/15/2017

Defaulted
Amount
($MM)

Recovery
Price

$150
$350
$34
$532
$743
$406
$269
$312
$589
$486
$952
$940
$300
$280
$831
$221
$500
$415
$185
$500
$500
$500
$500
$147
$499
$106
$1,000
$239
$53
$125
$200
$150
$200
$30
$20
$135
$175
$350
$325
$250
$30
$30
$70
$25

Moodys Special Comment

$57.4
$66.0
$95.0
$82.0
$83.0
$81.5
$78.0
$66.5
$74.0
$83.0
$81.5
$63.0
$63.0
$63.0
$63.0
$53.0
$42.5
$5.3
$69.3
$67.0
$66.8
$66.5
$66.8
$18.0
$18.0
$17.5
$18.0
$18.0
$17.5
$17.8
$17.5
$17.5
$17.5
$17.0
$17.0
$18.0
$17.5
$17.5
$18.0
$63.0
$92.0
$92.5
$91.5
$92.5

23

Exhibit 21 - 2005 Defaulted Corporate Bond Recoveries* (Contd)


Company

Country

Seniority

Fedders North America, Inc.


FLYi, Inc
Foamex L.P.
Foamex L.P.
Foamex L.P.
IWO Holdings
Levitz Home Furnishings, Inc.**
Levitz Home Furnishings, Inc.**
Northwest Airlines Corporation
Northwest Airlines Corporation
Northwest Airlines, Inc.
Northwest Airlines, Inc.
Northwest Airlines, Inc.
Northwest Airlines, Inc.
Northwest Airlines, Inc.
Northwest Airlines, Inc.
O'Sullivan Industries, Inc.
O'Sullivan Industries, Inc.
R.J. Tower Corporation
Refco Group LTD., LLC
Salton, Inc.
Salton, Inc.
Tower Automotive, Inc.

United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States

Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Subordinated
Sr. Subordinated
Sr. Unsecured
Sr. Secured
Sr. Secured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Subordinated
Sr. Unsecured
Sr. Subordinated
Sr. Subordinated
Sr. Subordinated
Sr. Unsecured

* Measured by secondary market prices taken 30-days post-default

24

Moodys Special Comment

Coupon
9.88%
6.00%
10.75%
9.88%
13.50%
9.63%
14.00%
6.63%
7.63%
8.88%
8.70%
7.88%
10.00%
9.88%
10.63%
13.38%
12.00%
9.00%
10.75%
12.25%
8.15%
5.75%
8.88%

Maturity
3/1/2014
2/15/2034
04/01/2009
05/15/2007
8/15/2005
11/15/2007
1/15/2011
5/15/2023
11/15/2023
6/1/2006
3/15/2007
3/15/2008
2/1/2009
3/15/2007
10/01/2008
10/15/2009
6/1/2013
8/1/2012
12/15/2005
4/15/2008
4/22/2005
5/15/2024
4/1/2008

Defaulted
Amount
($MM)
$155
$125
$300
$149
$52
$160
$100
$30
$150
$225
$270
$100
$200
$300
$143
$300
$100
$95
$258
$390
$125
$150
$125

Recovery
Price
$74.5
$31.9
$84.5
$9.0
$9.0
$70.0
$18.0
$0.5
$26.6
$27.1
$28.0
$28.5
$28.3
$28.8
$6.3
$28.8
$69.0
$20.6
$62.5
$73.0
$66.0
$54.5
$19.0

Exhibit 22 - 2005 Corporate Whole Letter Rating Migration Rates*


Beginning of
Year Rating
Aaa
Aa
A
Baa
Ba
B
Caa-C

Aaa
89.167
0.000
0.149
0.000
0.000
0.000
0.000

Aa
5.833
92.490
1.791
0.253
0.000
0.000
0.000

A
0.833
1.976
88.955
6.397
0.716
0.126
0.351

Baa

End of Year Rating


Ba

0.000
0.132
3.731
84.343
9.302
0.000
0.702

0.000
0.132
0.075
3.199
74.240
7.915
1.404

B
0.000
0.000
0.000
0.842
7.335
75.879
21.404

Caa-C
0.000
0.000
0.000
0.000
0.537
4.397
55.088

Default
0.000
0.000
0.000
0.168
0.000
1.131
7.719

WR
4.167
5.270
5.299
4.798
7.871
10.553
13.333

* Percentage of issuers rated as of 1 January 2005

Exhibit 23 - Average One-Year Corporate Whole Letter Rating Migration Rates, 1920-2005*
Beginning of
Year Rating
Aaa
Aa
A
Baa
Ba
B
Caa-C

Aaa
88.365
1.242
0.076
0.045
0.007
0.004
0.000

Aa
6.994
85.498
2.851
0.306
0.084
0.060
0.027

A
0.760
6.521
85.279
4.666
0.522
0.181
0.054

Baa

End of Year Rating


Ba

0.165
0.709
5.359
80.898
5.975
0.709
0.200

0.021
0.179
0.717
5.290
73.632
6.439
0.944

B
0.001
0.037
0.117
0.795
6.982
71.200
6.806

Caa-C
0.000
0.006
0.028
0.170
0.641
5.498
66.583

Default
0.000
0.060
0.073
0.287
1.316
4.225
13.885

WR
3.694
5.748
5.500
7.542
10.840
11.683
11.502

* Percentage of issuers calculated using monthly cohort spacing

Exhibit 24 - Average One-Year Corporate Whole Letter Rating Migration Rates, 1970-2005*
Beginning of
Year Rating
Aaa
Aa
A
Baa
Ba
B
Caa-C

Aaa

Aa

Baa

89.899
1.036
0.055
0.045
0.009
0.009
0.000

6.724
87.885
2.573
0.208
0.056
0.049
0.036

0.540
6.918
88.124
4.920
0.483
0.169
0.036

0.191
0.269
4.946
84.716
5.652
0.412
0.196

End of Year Rating


Ba
B
0.013
0.053
0.516
4.436
76.678
5.549
0.738

0.002
0.017
0.102
0.793
7.605
74.539
7.166

Caa-C

Default

WR

0.000
0.000
0.022
0.246
0.623
5.442
60.648

0.000
0.008
0.021
0.177
1.178
5.367
19.523

2.632
3.814
3.641
4.461
7.715
8.463
11.659

* Percentage of issuers calculated using monthly cohort spacing

Moodys Special Comment

25

26

Exhibit 25 - 2005 Corporate Alphanumeric Rating Migration Rates*


Moodys Special Comment

Beginning of
Year Rating
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa-C

Aaa

Aa1

Aa2

Aa3

A1

A2

A3

Baa1

89.167
0.000
0.000
0.000
0.000
0.480
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
75.758
5.500
0.000
0.000
0.000
0.000
0.477
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

5.833
0.758
87.000
4.215
0.463
0.000
0.000
0.000
0.233
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
17.424
1.500
87.119
3.704
1.199
0.204
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
1.500
0.703
87.037
2.638
3.462
0.000
0.233
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.833
0.000
0.000
0.703
2.546
79.137
11.813
2.387
0.930
0.000
0.658
0.535
0.000
0.000
0.000
0.000
0.351

0.000
0.000
0.000
1.405
0.926
6.954
72.505
10.501
3.721
0.295
0.658
0.000
0.455
0.000
0.328
0.000
0.000

0.000
0.000
0.000
0.234
0.463
1.439
5.092
71.838
8.837
4.720
0.658
0.000
0.455
0.000
0.000
0.000
0.000

End of Year Rating


Baa2
Baa3
Ba1

Ba2

Ba3

B1

B2

B3

Caa-C

Default

WR

0.000
0.000
0.000
0.000
0.000
0.000
0.204
2.864
1.163
1.770
55.921
20.321
4.545
1.250
0.656
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.465
1.770
10.526
53.476
13.636
6.250
0.984
0.000
1.053

0.000
0.000
0.000
0.234
0.000
0.000
0.000
0.000
0.233
1.770
1.316
5.882
55.909
10.000
3.279
2.390
0.351

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.930
0.590
1.316
4.813
9.091
57.500
13.443
2.789
1.404

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.233
0.885
0.000
0.535
2.727
9.583
60.000
17.131
4.912

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.658
0.000
0.909
2.500
7.541
55.777
15.088

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.535
0.909
0.833
2.623
9.960
55.088

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.233
0.295
0.000
0.000
0.000
0.000
0.984
2.390
7.719

4.167
6.061
4.500
5.386
4.861
7.674
3.666
5.251
4.651
4.425
5.263
8.556
9.091
12.083
10.164
9.562
13.333

End of Year Rating


Baa2
Baa3
Ba1

Ba2

Ba3

B1

B2

B3

Caa-C

Default

WR

0.000
0.000
0.000
0.030
0.135
0.095
0.191
0.497
0.586
2.643
5.068
62.636
6.061
2.805
0.720
0.347
0.089

0.000
0.004
0.027
0.026
0.056
0.147
0.221
0.391
0.718
1.397
4.288
7.558
64.806
6.188
2.038
0.783
0.402

0.002
0.000
0.018
0.018
0.053
0.043
0.118
0.505
0.580
0.681
1.370
2.574
7.077
63.201
7.801
3.258
0.940

0.000
0.000
0.009
0.003
0.032
0.047
0.048
0.073
0.264
0.424
1.164
2.716
4.802
9.085
60.507
5.882
1.218

0.000
0.000
0.000
0.000
0.000
0.006
0.029
0.041
0.146
0.247
0.739
1.074
2.264
4.031
8.266
58.663
3.312

0.000
0.000
0.000
0.000
0.000
0.037
0.029
0.123
0.225
0.625
0.379
0.736
1.034
2.457
6.211
11.229
59.462

0.000
0.000
0.000
0.018
0.003
0.025
0.036
0.159
0.156
0.320
0.705
0.753
1.981
3.041
5.166
9.071
23.779

2.893
3.475
4.002
4.196
3.894
3.664
4.195
4.088
4.632
4.874
7.682
8.672
7.585
7.880
8.237
10.129
10.405

0.000
0.000
0.000
0.000
0.000
0.480
0.815
4.535
72.558
14.159
3.947
0.000
0.909
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
2.240
2.148
5.581
69.322
19.079
5.348
1.364
0.000
0.000
0.000
0.702

* Percentage of issuers rated as of 1 January 2005

Exhibit 26 - Average One-Year Corporate Rating Migration Rates, 1983-2005*


Beginning of
Year Rating
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa-C

Aaa

Aa1

Aa2

Aa3

A1

A2

A3

Baa1

89.544
2.718
0.912
0.125
0.058
0.037
0.060
0.040
0.051
0.041
0.029
0.000
0.000
0.020
0.000
0.000
0.000

4.906
78.025
3.423
0.513
0.096
0.045
0.093
0.041
0.098
0.006
0.002
0.000
0.023
0.013
0.000
0.008
0.020

1.918
8.126
79.496
4.111
0.439
0.276
0.110
0.132
0.033
0.028
0.012
0.035
0.013
0.020
0.012
0.063
0.000

0.312
6.016
7.707
79.037
5.702
0.894
0.227
0.129
0.137
0.047
0.056
0.032
0.006
0.010
0.027
0.000
0.016

0.256
1.043
2.671
8.284
78.198
5.126
1.824
0.278
0.216
0.166
0.228
0.035
0.026
0.050
0.029
0.014
0.000

0.117
0.300
1.200
2.596
7.337
78.031
7.025
2.130
0.721
0.400
0.197
0.141
0.170
0.090
0.015
0.033
0.028

0.035
0.113
0.353
0.605
2.725
7.286
74.510
6.708
3.460
0.694
0.525
0.133
0.164
0.073
0.106
0.083
0.000

0.000
0.113
0.094
0.204
0.586
2.776
6.347
73.327
5.810
3.209
0.770
0.430
0.232
0.093
0.157
0.091
0.028

* Percentage of issuers calculated using monthly cohort spacing

0.000
0.025
0.087
0.150
0.352
0.885
3.297
7.267
73.813
8.564
3.112
0.822
0.266
0.158
0.099
0.077
0.085

0.000
0.016
0.007
0.035
0.000
0.000
0.074
0.011
0.103
0.230
0.370
0.212
1.153
0.485
3.134
0.937
6.657
1.698
70.068
5.566
9.217 64.458
2.877
8.776
0.564
2.927
0.225
0.561
0.176
0.433
0.157
0.113
0.108
0.108

Exhibit 27 - Annual Moody's-Rated Global Corporate Bond Issuer Default Counts, 1920-2005*
Cohort
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962

Investment
Grade
8
7
10
5
3
7
4
1
0
3
2
6
9
9
5
9
3
4
9
2
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Speculative
Grade

All
Corporates

25
24
23
22
37
34
18
15
8
12
21
79
108
188
60
51
19
17
17
13
16
10
4
3
3
2
0
1
0
5
0
1
0
0
1
1
0
1
0
0
2
3
4

33
31
33
27
40
41
22
16
8
15
23
85
117
197
65
60
22
21
26
15
18
10
4
3
3
2
0
1
0
5
0
1
0
0
1
1
0
1
0
0
2
3
4

Cohort
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Investment
Grade
0
0
0
0
0
0
0
2
0
0
2
0
0
0
1
0
0
0
0
2
0
1
0
4
0
0
4
0
1
0
0
0
0
0
0
1
1
4
4
16
0
0
2

Speculative
Grade

All
Corporates

3
0
0
1
0
1
0
25
3
5
3
3
4
2
3
4
1
4
2
11
13
12
16
30
30
29
48
83
71
29
22
15
31
17
24
50
98
112
180
129
80
36
30

3
0
0
1
0
1
0
27
3
5
5
3
4
2
4
4
1
4
2
13
13
13
16
34
30
29
52
83
72
29
22
15
31
17
24
51
99
116
184
145
80
36
32

* Includes issuers rated as of January 1 of each cohort year

Moodys Special Comment

27

Exhibit 28 - Annual Moody's-Rated Global Corporate Bond Default Volume Totals, 1970-2005*
Cohort

Investment Grade

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

$154
$0
$0
$17
$0
$0
$0
$68
$0
$0
$0
$0
$243
$0
$183
$0
$178
$0
$0
$1,506
$0
$1,348
$0
$0
$0
$0
$0
$0
$399
$461
$4,115
$21,251
$55,680
$0
$0
$2,155

* USD millions. Includes issuers rated as of January 1 of each cohort year.

28

Moodys Special Comment

Speculative Grade

Total

$756
$132
$215
$94
$69
$176
$34
$179
$112
$18
$302
$47
$515
$1,161
$474
$1,705
$3,759
$9,132
$5,425
$10,196
$20,148
$15,752
$6,275
$1,997
$2,070
$6,725
$4,042
$5,079
$10,272
$27,798
$24,760
$80,122
$109,022
$34,803
$16,468
$26,812

$910
$132
$215
$112
$69
$176
$34
$247
$112
$18
$302
$47
$758
$1,161
$657
$1,705
$3,937
$9,132
$5,425
$11,702
$20,148
$17,100
$6,275
$1,997
$2,070
$6,725
$4,042
$5,079
$10,671
$28,259
$28,876
$101,373
$164,702
$34,803
$16,468
$28,967

Exhibit 29 - Annual Average Defaulted Bond Recovery Rates by Lien Position, 1982-2005*
Year
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Secured Bank
Loans
NA
NA
NA
NA
NA
NA
NA
NA
76.1
70.6
50.0
47.3
61.0
82.8
89.1
83.1
59.3
68.3
71.6
67.0
55.8
77.9
86.1
81.6

Sr. Secured
Bonds
72.5
40.0
NA
83.6
59.2
71.0
55.3
46.5
35.7
49.5
62.7
NA
69.3
63.6
47.6
76.0
53.7
43.3
41.7
41.7
46.9
63.5
78.7
77.9

Sr. Unsecured
Bonds
34.4
52.7
49.4
60.2
52.6
62.7
45.2
46.2
37.0
38.8
45.9
44.7
53.7
47.6
62.8
55.1
38.6
38.0
23.2
21.8
30.3
40.5
53.2
55.2

Sr. Subordinated
Bonds
48.1
43.5
67.9
30.9
50.2
49.6
33.4
34.6
26.7
43.4
47.9
51.9
29.6
34.3
42.8
44.7
42.7
29.1
20.3
20.9
25.3
38.8
47.5
33.6

Subordinated
Bonds
32.3
41.4
44.3
42.7
43.7
46.2
33.8
26.4
20.5
25.3
37.8
43.7
33.7
39.4
24.3
41.3
13.3
35.5
32.9
15.9
24.5
12.3
82.9
95.0

Jr. Sub.
Bonds
NA
NA
NA
48.5
NA
NA
36.5
16.9
10.7
7.8
13.5
NA
NA
NA
NA
30.6
62.0
NA
15.5
47.0
NA
NA
NA
NA

All Bonds
35.6
44.8
46.3
44.2
47.9
52.9
38.5
32.3
26.1
35.1
44.2
46.0
44.1
44.5
41.5
51.1
38.7
35.9
25.5
23.8
31.2
41.6
59.9
55.9

Pfd. Stock
15.0
NA
15.9
13.8
22.1
22.6
11.0
8.7
6.9
10.7
14.5
6.8
NA
12.0
10.6
7.3
7.1
18.0
5.8
6.6
5.7
4.5
50.3
13.8

* Measured by secondary market prices taken 30-days post-default.

Moodys Special Comment

29

Exhibit 30 - Annual Issuer-Weighted Global Corporate Default Rates, 1920-2005*


Cohort
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962

Investment
Grade

Speculative
Grade

0.439
0.380
0.515
0.242
0.138
0.325
0.225
0.073
0.000
0.239
0.158
0.488
0.775
0.801
0.573
1.241
0.460
0.653
1.554
0.397
0.559
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

3.010
2.066
1.776
1.713
2.846
2.557
1.756
1.781
0.897
1.294
2.131
7.845
10.811
15.391
5.929
6.090
2.736
2.591
2.582
1.739
2.585
1.684
0.743
0.609
0.670
0.517
0.000
0.310
0.000
1.880
0.000
0.450
0.000
0.000
0.473
0.505
0.000
0.457
0.000
0.000
0.739
1.073
1.468

All
Corporates
1.244
1.031
1.019
0.805
1.152
1.176
0.784
0.725
0.373
0.687
1.021
3.801
5.417
8.403
3.449
3.840
1.634
1.655
2.101
1.199
1.843
1.072
0.460
0.367
0.394
0.289
0.000
0.155
0.000
0.826
0.000
0.179
0.000
0.000
0.164
0.163
0.000
0.144
0.000
0.000
0.243
0.353
0.463

* Includes issuers rated as of January 1 of each cohort year

30

Moodys Special Comment

Cohort
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Investment
Grade
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.271
0.000
0.000
0.231
0.000
0.000
0.000
0.109
0.000
0.000
0.000
0.000
0.211
0.000
0.095
0.000
0.318
0.000
0.000
0.286
0.000
0.065
0.000
0.000
0.000
0.000
0.000
0.000
0.037
0.035
0.132
0.127
0.485
0.000
0.000
0.059

Speculative
Grade
1.161
0.000
0.000
0.415
0.000
0.385
0.000
8.741
1.143
1.942
1.282
1.342
1.743
0.871
1.345
1.790
0.418
1.613
0.703
3.560
3.818
3.324
3.670
5.644
4.234
3.598
5.797
10.079
10.395
4.833
3.509
1.938
3.319
1.670
2.057
3.442
5.696
6.127
10.554
8.426
5.314
2.347
1.924

All
Corporates
0.351
0.000
0.000
0.119
0.000
0.107
0.000
2.638
0.285
0.455
0.454
0.275
0.360
0.175
0.351
0.352
0.087
0.343
0.163
1.034
0.962
0.922
1.005
1.901
1.499
1.355
2.336
3.588
3.226
1.306
0.940
0.560
1.025
0.514
0.652
1.227
2.157
2.385
3.783
3.003
1.701
0.763
0.648

Exhibit 31 - Annual Issuer-Weighted Corporate Default Rates by Whole Letter Rating, 1920-2005*

Moodys Special Comment

Cohort

Aaa

Aa

Baa

1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.185
0.189
0.000
0.371
0.000
0.463
0.000
0.000
0.300
0.000
0.000
0.670
0.000
0.599
0.000
0.784
0.000
0.833
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.334
0.340
0.170
0.000
0.000
0.147
0.177
0.222
0.000
0.000
0.000
0.281
0.871
0.265
0.347
1.333
0.505
0.539
1.700
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.962
0.639
1.108
0.614
0.118
0.709
0.142
0.000
0.000
0.433
0.419
1.035
0.892
1.800
0.811
1.887
0.341
1.093
1.972
0.946
1.316
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

Ba

2.157
0.447
1.077
0.910
2.041
1.714
1.395
1.269
0.183
0.752
0.922
2.959
5.973
11.111
2.632
4.826
1.225
0.649
0.976
0.588
0.410
0.932
0.000
0.000
0.000
0.000
0.000
0.000
0.000
1.342
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
1.231
0.581
1.700

4.368
2.693
1.733
2.320
2.788
2.545
2.050
1.869
1.252
0.877
2.902
9.220
13.785
15.916
4.309
4.173
2.358
2.697
1.468
1.875
1.097
0.766
0.818
1.345
0.512
0.000
0.000
0.000
0.000
1.111
0.000
0.000
0.000
0.000
0.000
1.504
0.000
1.290
0.000
0.000
0.000
0.000
1.379

31

* Includes issuers rated as of January 1 of each cohort year

Caa-C
0.000
12.270
7.692
5.952
12.414
14.634
5.195
13.043
11.111
9.434
7.813
32.468
23.392
25.668
16.040
13.072
7.930
9.040
12.739
5.714
11.823
5.063
1.980
0.000
2.532
3.226
0.000
2.439
0.000
7.407
0.000
4.651
0.000
0.000
7.143
0.000
0.000
0.000
0.000
0.000
0.000
8.696
0.000

Inv.Gr.
0.439
0.380
0.515
0.242
0.138
0.325
0.225
0.073
0.000
0.239
0.158
0.488
0.775
0.801
0.573
1.241
0.460
0.653
1.554
0.397
0.559
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

Spec.Gr.
3.010
2.066
1.776
1.713
2.846
2.557
1.756
1.781
0.897
1.294
2.131
7.845
10.811
15.391
5.929
6.090
2.736
2.591
2.582
1.739
2.585
1.684
0.743
0.609
0.670
0.517
0.000
0.310
0.000
1.880
0.000
0.450
0.000
0.000
0.473
0.505
0.000
0.457
0.000
0.000
0.739
1.073
1.468

All

Cohort

Aaa

Aa

Baa

Ba

1.244
1.031
1.019
0.805
1.152
1.176
0.784
0.725
0.373
0.687
1.021
3.801
5.417
8.403
3.449
3.840
1.634
1.655
2.101
1.199
1.843
1.072
0.460
0.367
0.394
0.289
0.000
0.155
0.000
0.826
0.000
0.179
0.000
0.000
0.164
0.163
0.000
0.144
0.000
0.000
0.243
0.353
0.463

1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.596
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.254
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.156
0.156
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.544
0.000
0.000
0.457
0.000
0.000
0.000
0.285
0.000
0.000
0.000
0.000
0.317
0.000
0.368
0.000
1.356
0.000
0.000
0.598
0.000
0.272
0.000
0.000
0.000
0.000
0.000
0.000
0.117
0.103
0.380
0.189
1.206
0.000
0.000
0.172

1.153
0.000
0.000
0.000
0.000
0.000
0.000
4.246
0.866
0.000
0.000
0.000
1.026
1.000
0.522
1.084
0.490
0.000
0.000
2.740
0.911
0.833
1.404
2.035
2.718
1.247
2.982
3.344
5.352
0.299
0.549
0.236
0.686
0.000
0.190
0.624
1.006
0.887
1.575
1.533
0.941
0.188
0.000

B
1.587
0.000
0.000
2.222
0.000
0.000
0.000
19.718
0.000
7.407
3.922
10.345
6.154
0.000
3.390
5.556
0.000
4.938
4.598
2.410
6.306
6.723
8.219
11.732
6.226
6.359
8.947
16.201
14.563
9.035
5.785
3.859
4.767
1.439
2.124
4.246
5.983
5.475
9.319
5.062
2.648
0.774
1.060

Caa-C
0.000
0.000
0.000
0.000
0.000
5.405
0.000
53.333
14.286
40.000
44.444
0.000
0.000
0.000
50.000
0.000
0.000
33.333
0.000
25.000
40.000
100.000
0.000
23.529
20.000
28.571
25.000
58.824
36.842
26.667
28.571
5.128
12.389
14.184
14.865
15.238
20.438
20.000
34.227
30.216
21.832
12.747
8.271

Inv.Gr.
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.271
0.000
0.000
0.231
0.000
0.000
0.000
0.109
0.000
0.000
0.000
0.000
0.211
0.000
0.095
0.000
0.318
0.000
0.000
0.286
0.000
0.065
0.000
0.000
0.000
0.000
0.000
0.000
0.037
0.035
0.132
0.127
0.485
0.000
0.000
0.059

Spec.Gr.
1.161
0.000
0.000
0.415
0.000
0.385
0.000
8.741
1.143
1.942
1.282
1.342
1.743
0.871
1.345
1.790
0.418
1.613
0.703
3.560
3.818
3.324
3.670
5.644
4.234
3.598
5.797
10.079
10.395
4.833
3.509
1.938
3.319
1.670
2.057
3.442
5.696
6.127
10.554
8.426
5.314
2.347
1.924

All
0.351
0.000
0.000
0.119
0.000
0.107
0.000
2.638
0.285
0.455
0.454
0.275
0.360
0.175
0.351
0.352
0.087
0.343
0.163
1.034
0.962
0.922
1.005
1.901
1.499
1.355
2.336
3.588
3.226
1.306
0.940
0.560
1.025
0.514
0.652
1.227
2.157
2.385
3.783
3.003
1.701
0.763
0.648

32

Exhibit 32 - Annual Issuer-Weighted Corporate Default Rates by Alphanumeric Rating, 1983-2005*


Moodys Special Comment

Cohort

Aaa

Aa1

Aa2

Aa3

A1

A2

A3

Baa1

Baa2

Baa3

Ba1

Ba2

1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
1.342
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.410
0.000
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.430
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.735
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.287
0.272
1.247
0.000
0.000
0.000

0.000
0.000
0.000
0.000
0.000
0.000
0.820
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.308
0.000
0.000
0.264
0.719
0.000
0.000
0.237

0.000
1.075
0.000
4.878
0.000
0.000
1.053
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.348
0.984
0.000
1.752
0.000
0.000
0.298

0.000
1.156
0.000
0.870
3.731
0.000
0.794
2.667
1.075
0.000
0.826
0.000
0.000
0.000
0.000
0.000
0.483
0.943
0.528
1.622
0.536
0.000
0.000

0.000 2.614
1.613 0.000
1.626 2.830
1.198 3.436
0.952 2.963
0.000 2.575
1.818 4.711
2.817 3.922
0.000 10.084
0.000 0.727
0.000 0.741
0.000 0.583
0.000 1.770
0.000 0.000
0.000 0.474
0.613 1.117
0.000 1.967
0.631 1.036
1.333 2.967
1.389 1.554
0.738 1.432
0.000 0.467
0.000 0.000

* Includes issuers rated as of January 1 of each cohort year

Ba3

B1

B2

B3

Caa-C

0.000
5.839
4.380
7.609
4.930
4.313
5.755
8.521
5.861
1.000
3.292
1.917
4.348
1.179
0.000
2.128
3.352
3.448
3.343
1.934
0.771
0.000
0.000

10.000
18.750
7.692
16.667
4.301
7.143
9.790
22.642
12.903
1.587
5.128
3.704
6.422
0.000
1.515
7.368
6.884
4.067
10.454
6.474
2.487
0.651
1.034

17.910
2.899
13.592
15.789
10.219
10.959
18.045
29.114
28.421
24.845
11.290
8.163
3.941
3.361
7.435
5.694
9.730
10.901
16.774
7.263
5.666
2.020
2.092

40.000
100.000
0.000
23.529
20.000
28.571
25.000
58.824
36.842
26.667
28.571
5.128
12.389
14.184
14.865
15.238
20.438
20.000
34.227
30.216
21.832
12.747
8.271

Inv.Gr.

Spec.Gr.

0.000
0.095
0.000
0.318
0.000
0.000
0.286
0.000
0.065
0.000
0.000
0.000
0.000
0.000
0.000
0.037
0.035
0.132
0.127
0.485
0.000
0.000
0.059

3.818
3.324
3.670
5.644
4.234
3.598
5.797
10.079
10.395
4.833
3.509
1.938
3.319
1.670
2.057
3.442
5.696
6.127
10.554
8.426
5.314
2.347
1.924

Total
0.962
0.922
1.005
1.901
1.499
1.355
2.336
3.588
3.226
1.306
0.940
0.560
1.025
0.514
0.652
1.227
2.157
2.385
3.783
3.003
1.701
0.763
0.648

Exhibit 33 - Average Cumulative Issuer-Weighted Corporate Default Rates by Whole Letter Rating, 1920-2005*
Rating

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.000
0.064
0.077
0.301
1.394
4.477
14.692
0.150
3.790
1.458

0.000
0.192
0.251
0.902
3.340
9.714
24.111
0.456
7.663
3.002

0.020
0.303
0.531
1.662
5.523
14.814
31.050
0.852
11.348
4.499

0.081
0.471
0.856
2.494
7.762
19.316
36.067
1.302
14.638
5.862

0.170
0.743
1.183
3.360
9.927
23.234
39.733
1.787
17.532
7.087

0.266
1.070
1.535
4.211
11.950
26.549
42.756
2.285
20.053
8.179

0.383
1.415
1.902
5.035
13.818
29.469
45.069
2.783
22.275
9.158

0.550
1.751
2.256
5.854
15.648
31.837
47.110
3.275
24.263
10.050

0.726
2.074
2.651
6.709
17.331
33.872
49.092
3.791
26.051
10.892

0.929
2.440
3.073
7.547
19.065
35.649
50.952
4.322
27.780
11.721

Rating

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

1.107
2.830
3.517
8.294
20.597
37.154
52.747
4.835
29.308
12.480

1.248
3.253
3.948
9.047
22.078
38.538
54.586
5.349
30.774
13.219

1.400
3.674
4.322
9.769
23.540
39.744
56.253
5.831
32.162
13.911

1.449
4.097
4.668
10.431
24.784
40.879
57.979
6.275
33.406
14.535

1.490
4.418
5.079
11.017
25.845
41.977
59.658
6.695
34.526
15.111

1.571
4.655
5.450
11.593
26.862
43.035
61.145
7.083
35.593
15.648

1.658
4.842
5.730
12.106
27.937
43.881
62.526
7.406
36.627
16.127

1.725
5.034
5.994
12.564
28.928
44.511
63.866
7.704
37.549
16.561

1.814
5.244
6.258
12.984
29.767
44.942
65.120
7.995
38.316
16.954

1.871
5.407
6.502
13.440
30.584
45.173
66.352
8.278
39.013
17.325

* Calculated using monthly cohort spacing

Exhibit 34 - Average Cumulative Issuer-Weighted Corporate Default Rates by Whole Letter Rating, 1970-2005*
Rating

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.000
0.008
0.022
0.183
1.231
5.646
21.120
0.070
4.745
1.513

0.000
0.020
0.103
0.528
3.306
12.352
33.533
0.215
9.534
3.037

0.000
0.046
0.239
0.979
5.752
18.649
43.469
0.419
14.011
4.446

0.028
0.116
0.374
1.522
8.260
24.093
51.009
0.659
17.902
5.661

0.106
0.194
0.513
2.057
10.574
29.061
56.521
0.903
21.289
6.693

0.184
0.286
0.671
2.600
12.651
33.497
61.052
1.157
24.201
7.572

0.267
0.379
0.831
3.134
14.481
37.471
64.578
1.408
26.682
8.311

0.357
0.460
1.015
3.650
16.278
40.715
68.497
1.661
28.852
8.955

0.453
0.514
1.215
4.234
18.045
43.585
71.980
1.933
30.835
9.554

0.556
0.580
1.419
4.892
19.855
46.121
74.723
2.231
32.715
10.138

Rating

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.664
0.649
1.627
5.502
21.616
47.558
75.158
2.519
34.259
10.660

0.780
0.761
1.821
6.175
23.415
48.766
75.158
2.829
35.737
11.181

0.900
0.916
2.022
6.854
25.154
49.654
75.158
3.152
37.088
11.685

0.968
1.059
2.212
7.564
26.816
50.508
75.158
3.472
38.376
12.172

1.043
1.163
2.487
8.240
28.291
51.259
75.158
3.811
39.513
12.647

1.125
1.289
2.811
8.842
29.776
51.769
75.158
4.155
40.583
13.115

1.216
1.438
3.168
9.407
31.139
51.958
75.158
4.509
41.478
13.559

1.249
1.577
3.527
9.966
32.172
52.115
75.158
4.855
42.154
13.958

1.249
1.743
3.878
10.438
33.151
52.115
75.158
5.176
42.743
14.323

1.249
1.912
4.199
10.907
33.974
52.115
75.158
5.485
43.232
14.661

* Calculated using monthly cohort spacing

Moodys Special Comment

33

Exhibit 35 - Average Issuer-Weighted Corporate Default Rates by Whole Letter Rating, 1983-2005
Rating

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.000
0.010
0.022
0.213
1.307
5.693
20.982
0.075
5.145
1.737

0.000
0.023
0.114
0.604
3.641
12.569
33.367
0.232
10.419
3.508

0.000
0.053
0.271
1.082
6.499
19.038
43.498
0.443
15.428
5.160

0.039
0.127
0.418
1.662
9.373
24.610
51.396
0.688
19.771
6.567

0.085
0.203
0.563
2.248
11.845
29.734
57.012
0.931
23.489
7.734

0.141
0.255
0.717
2.812
14.045
34.371
61.399
1.164
26.703
8.704

0.203
0.294
0.858
3.351
16.039
38.506
64.756
1.377
29.479
9.501

0.208
0.326
1.009
3.812
17.891
41.870
68.697
1.566
31.826
10.141

0.208
0.354
1.149
4.237
19.538
44.593
73.534
1.736
33.786
10.656

0.208
0.415
1.248
4.721
21.038
46.931
78.673
1.907
35.506
11.108

Rating

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.208
0.480
1.341
5.150
22.299
48.160
79.109
2.068
36.685
11.468

0.208
0.604
1.413
5.627
23.610
49.222
79.109
2.245
37.790
11.823

0.208
0.742
1.523
6.213
24.841
50.031
79.109
2.466
38.755
12.182

0.208
0.842
1.661
6.831
26.134
50.829
79.109
2.696
39.742
12.553

0.208
0.948
1.891
7.343
27.110
51.478
79.109
2.943
40.503
12.895

0.208
1.071
2.210
7.701
28.003
51.817
79.109
3.195
41.089
13.210

0.208
1.214
2.574
8.083
28.899
51.959
79.109
3.480
41.581
13.533

0.208
1.379
2.965
8.515
29.542
52.143
79.109
3.797
41.964
13.860

0.208
1.484
3.221
8.862
30.138
52.143
79.109
4.022
42.231
14.094

0.208
1.494
3.357
9.084
30.410
52.143
79.109
4.142
42.349
14.213

* Calculated using monthly cohort spacing

34

Moodys Special Comment

Exhibit 36 - Average Cumulative Issuer-Weighted Corporate Default Rates by Alphanumeric Rating, 1983-2005*
Rating

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.000
0.000
0.000
0.019
0.003
0.026
0.037
0.166
0.161
0.335
0.753
0.780
2.069
3.223
5.457
10.460
20.982
0.075
5.145
1.737

0.000
0.000
0.011
0.040
0.091
0.082
0.175
0.449
0.466
0.965
2.006
2.297
5.749
8.701
12.511
19.782
33.367
0.232
10.419
3.508

0.000
0.000
0.048
0.078
0.241
0.224
0.358
0.794
0.883
1.680
3.567
4.309
10.151
14.360
18.535
28.532
43.498
0.443
15.428
5.160

0.039
0.110
0.120
0.138
0.339
0.427
0.487
1.098
1.523
2.528
5.115
6.424
14.574
19.331
23.797
35.905
51.396
0.688
19.771
6.567

0.085
0.166
0.232
0.199
0.416
0.614
0.659
1.378
2.074
3.544
6.643
8.347
18.207
24.542
28.087
42.002
57.012
0.931
23.489
7.734

0.141
0.187
0.286
0.264
0.494
0.797
0.864
1.596
2.643
4.542
8.231
9.696
21.540
29.454
31.395
47.714
61.399
1.164
26.703
8.704

0.203
0.187
0.346
0.305
0.554
1.004
1.015
1.856
3.178
5.446
9.261
11.146
24.828
34.335
33.856
52.005
64.756
1.377
29.479
9.501

0.208
0.187
0.416
0.324
0.608
1.222
1.196
1.976
3.686
6.286
10.224
12.412
27.999
38.196
35.860
55.652
68.697
1.566
31.826
10.141

0.208
0.187
0.497
0.329
0.689
1.411
1.345
2.091
4.282
6.887
10.995
13.679
30.859
41.178
38.447
57.945
73.534
1.736
33.786
10.656

0.208
0.187
0.590
0.394
0.797
1.525
1.411
2.178
5.100
7.450
11.834
14.560
33.544
43.914
40.523
59.688
78.673
1.907
35.506
11.108

Rating

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.208
0.187
0.688
0.464
0.954
1.571
1.492
2.271
5.915
7.805
12.790
15.566
35.321
45.549
41.353
60.659
79.109
2.068
36.685
11.468

0.208
0.187
0.800
0.649
1.108
1.624
1.498
2.459
6.836
8.068
14.028
17.000
36.648
46.775
42.027
61.900
79.109
2.245
37.790
11.823

0.208
0.364
0.854
0.826
1.300
1.684
1.579
2.717
7.556
8.910
14.797
18.432
38.269
47.774
42.745
62.524
79.109
2.466
38.755
12.182

0.208
0.585
0.854
0.939
1.558
1.753
1.681
3.166
8.223
9.682
15.409
19.639
40.395
48.815
43.903
62.524
79.109
2.696
39.742
12.553

0.208
0.845
0.854
1.052
1.848
1.837
2.046
3.531
9.133
9.846
15.891
21.331
41.476
49.446
45.131
62.524
79.109
2.943
40.503
12.895

0.208
0.949
0.979
1.182
2.174
2.021
2.542
3.949
9.707
9.846
16.734
22.750
42.103
49.892
45.624
62.524
79.109
3.195
41.089
13.210

0.208
0.949
1.192
1.332
2.315
2.421
3.090
4.446
10.261
9.866
18.228
23.409
42.478
49.892
46.061
62.524
79.109
3.480
41.581
13.533

0.208
0.949
1.437
1.506
2.315
2.904
3.760
4.661
10.834
10.371
19.517
23.572
42.687
49.892
46.473
62.698
79.109
3.797
41.964
13.860

0.208
0.949
1.719
1.523
2.315
3.238
4.172
4.661
11.506
10.705
20.837
23.814
42.687
49.892
46.473
62.698
79.109
4.022
42.231
14.094

0.208
0.949
1.746
1.523
2.315
3.323
4.499
4.661
11.873
10.989
21.290
23.814
42.936
49.892
46.473
62.698
79.109
4.142
42.349
14.213

* Calculated using monthly cohort spacing

Moodys Special Comment

35

Exhibit 37 - Average Sovereign Default Rates by Whole Letter Rating, 1983-2005*


Rating

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Sovereigns

0.00
0.00
0.00
0.00
0.57
4.35
18.18
0.00
2.67
0.79

0.00
0.00
0.00
1.66
1.20
7.32
28.41
0.31
4.51
1.55

0.00
0.00
0.00
2.61
2.58
9.57
28.41
0.48
6.16
2.16

0.00
0.00
0.00
3.70
4.90
10.92
28.41
0.67
8.06
2.85

0.00
0.00
0.00
5.08
4.90
14.16
28.41
0.89
9.18
3.31

0.00
0.00
0.00
6.91
4.90
18.34
28.41
1.14
10.52
3.86

0.00
0.00
0.00
6.91
6.22
21.26
28.41
1.14
12.28
4.29

0.00
0.00
0.00
6.91
7.90
25.64
NA
1.14
14.65
4.80

0.00
0.00
0.00
6.91
10.20
31.36
NA
1.14
17.87
5.40

0.00
0.00
0.00
6.91
13.30
38.22
NA
1.14
22.08
6.10

* Calculated using annual cohort spacing


** NA = Not meaningful, no issuer had a rating of Caa - C for more than seven years.

Exhibit 38 - Time to Default (Months) by Original Rating, 1970-2005


Original Rating
Aaa
Aa
A
Baa
Ba
B
Caa-C

Mean

Min

Max

StDev

628
372
306
218
114
54
39

443
28
52
60
19
15
23

816
992
836
717
237
170
64

152
288
209
146
50
35
12

Exhibit 39 - Annual Defaulted Issuer Counts and Total Dollar Volume by Default Event, 1980-2005*
Cohort
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Bankruptcy

Issuer Count
Missed Payment Distressed Exchange

0
2
10
6
7
3
11
8
4
15
27
17
8
7
7
10
7
6
13
25
27
53
37
27
10
18

4
0
2
4
4
9
16
14
23
26
51
54
20
12
8
20
8
17
34
59
86
121
90
39
15
12

* Includes issuers rated as of January 1 of each cohort year

36

Moodys Special Comment

0
0
1
3
2
4
7
8
2
11
5
1
1
3
0
1
2
1
4
15
3
10
18
14
11
2

Bankruptcy
$0
$47
$739
$139
$449
$80
$951
$7,477
$1,496
$5,106
$6,617
$3,829
$3,637
$699
$1,106
$2,367
$2,288
$1,145
$2,705
$8,887
$9,409
$41,594
$33,901
$16,715
$4,908
$18,928

Total Volume
Missed Payment Distressed Exchange
$302
$0
$7
$98
$64
$1,183
$1,309
$1,008
$3,602
$4,747
$11,203
$13,117
$2,605
$602
$964
$4,235
$1,472
$3,816
$7,283
$14,298
$19,140
$56,219
$105,126
$12,260
$3,525
$2,911

$0
$0
$12
$924
$145
$442
$1,678
$646
$327
$1,849
$2,328
$153
$33
$696
$0
$123
$282
$118
$683
$5,074
$327
$3,560
$25,676
$5,828
$8,034
$7,127

Exhibit 40 - Annual Dollar Volume-Weighted Corporate Default Rates by Whole Letter Rating, 1994-2005
Cohort

Aaa

Aa

Baa

Ba

Caa-C

Inv.Gr.

Spec.Gr.

Total

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

0.00
0.00
0.00
0.00
0.00
0.00
0.00
1.18
2.77
0.00
0.00
0.00

0.00
0.00
0.00
0.00
0.00
0.14
0.65
1.76
3.69
0.00
0.00
0.20

0.14
0.57
0.00
0.05
0.65
2.22
1.04
1.18
3.38
3.62
0.00
0.00

1.93
6.26
1.62
3.06
3.02
5.79
5.60
14.13
16.83
2.61
0.27
1.51

2.80
12.11
22.53
6.70
14.70
21.10
20.46
66.41
86.29
17.73
12.84
16.79

0.00
0.00
0.00
0.00
0.00
0.03
0.14
0.93
2.32
0.00
0.00
0.07

1.20
4.28
2.31
1.93
2.98
6.38
5.56
17.26
21.54
5.81
2.58
3.79

0.24
0.99
0.66
0.50
0.89
1.23
1.29
3.61
5.51
1.02
0.45
0.75

Exhibit 41 - Average Dollar Volume-Weighted Corporate Default Rates by Whole Letter Rating, 1994-2005*
Rating

Year 1

Year 2

Year 3

Year 4

Year 5

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

0.00
0.00
0.44
0.67
1.25
5.22
27.51
0.40
6.78
1.64

0.00
0.00
0.83
1.50
3.38
13.23
42.67
0.82
13.42
3.25

0.00
0.00
1.16
2.31
5.91
20.62
53.39
1.19
19.15
4.65

0.00
0.00
1.44
3.29
8.68
26.25
60.71
1.57
23.62
5.84

0.00
0.00
1.79
4.11
10.47
29.47
62.31
1.93
26.12
6.65

* Calculated using annual cohort spacing

Moodys Special Comment

37

38

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Moodys Special Comment

Cohort Formed 1/1/1970


Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

39
78
255
370
240
36
15
742
291
1,033

0.000
0.000
0.000
0.544
4.246
19.718
53.333
0.271
8.741
2.638

0.000
0.000
0.000
0.544
5.121
19.718
60.000
0.271
9.819
2.936

0.000
0.000
0.000
0.544
5.576
22.586
80.000
0.271
11.679
3.442

0.000
0.000
0.410
1.124
6.050
22.586
88.000
0.696
12.453
3.960

0.000
0.000
0.410
1.420
7.026
22.586
88.000
0.840
13.255
4.277

0.000
0.000
0.828
1.420
8.043
22.586
88.000
0.987
14.091
4.602

0.000
0.000
0.000
0.000
0.828
0.828
1.732
2.378
8.579
9.152
22.586 22.586
88.000 100.000
1.136
1.440
14.531 15.468
4.824
5.281

0.000
0.000
0.828
3.049
10.375
22.586

1.752
16.462
5.754

0.000
0.000
0.828
3.049
10.375
22.586

1.752
16.462
5.754

0.000
0.000
1.281
3.412
10.375
22.586

2.082
16.462
6.009

0.000
0.000
1.281
3.412
11.927
22.586

2.082
17.705
6.273

0.000
0.000
1.281
4.597
14.420
30.955

2.604
21.010
7.364

0.000
1.439
1.281
5.009
15.307
30.955

2.961
21.715
7.786

0.000
1.439
1.281
5.433
15.307
30.955

3.142
21.715
7.931

0.000
1.439
1.281
6.317
17.335
30.955

3.515
23.313
8.526

0.000
2.921
1.776
7.722
21.686
30.955

4.474
26.779
9.918

2.703
2.921
1.776
8.741
24.153
30.955

5.080
28.744
10.741

2.703
2.921
2.852
9.861
24.153
30.955

5.937
28.744
11.444

2.703
2.921
2.852
10.464
25.655
30.955

6.160
29.952
11.813

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

39
75
283
396
233
25
7
793
265
1,058

0.000
0.000
0.000
0.000
0.866
0.000
14.286
0.000
1.143
0.285

0.000
0.000
0.000
0.000
1.315
4.167
57.143
0.000
3.116
0.770

0.000
0.000
0.363
0.533
1.784
4.167
74.286
0.392
3.939
1.266

0.000
0.000
0.363
0.805
2.749
4.167
74.286
0.525
4.791
1.570

0.000
0.000
0.733
0.805
4.257
4.167
74.286
0.661
6.126
1.986

0.000
0.000
0.000
0.000
0.733
0.733
1.096
1.700
4.788
5.354
4.167
4.167
74.286 100.000
0.800
1.083
6.595
7.594
2.200
2.641

0.000
0.000
0.733
2.330
6.564
4.167

1.374
8.656
3.097

0.000
0.000
0.733
2.330
6.564
4.167

1.374
8.656
3.097

0.000
0.000
1.130
2.670
6.564
4.167

1.681
8.656
3.342

0.000
0.000
1.130
2.670
8.077
4.167

1.681
9.980
3.597

0.000
0.000
1.541
3.793
10.507
17.857

2.332
13.510
4.782

0.000
0.000
1.955
4.183
11.371
17.857

2.665
14.262
5.190

0.000
0.000
1.955
4.585
11.371
17.857

2.835
14.262
5.329

0.000
0.000
1.955
5.422
13.330
17.857

3.183
15.960
5.903

0.000
0.000
2.386
6.748
18.615
17.857

3.900
20.552
7.244

2.778
0.000
2.386
7.704
21.044
17.857

4.464
22.643
8.035

2.778
0.000
3.318
8.747
21.044
17.857

5.260
22.643
8.708

2.778
0.000
3.318
9.303
22.520
17.857

5.469
23.932
9.063

2.778
1.786
3.318
10.477
22.520
17.857

6.117
23.932
9.617

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

40
78
305
429
228
27
8
852
263
1,115

0.000
0.000
0.000
0.000
0.000
7.407
40.000
0.000
1.942
0.455

0.000
0.000
0.335
0.490
0.464
7.407
57.143
0.364
2.747
0.921

0.000
0.000
0.335
0.739
1.419
7.407
57.143
0.487
3.580
1.206

0.000
0.000
0.335
0.995
2.912
7.407
57.143
0.612
4.886
1.595

0.000
0.000
0.335
1.262
3.437
7.407
57.143
0.740
5.344
1.795

0.000
0.000
0.335
1.816
3.994
7.407
78.571
1.003
6.313
2.208

0.000
0.000
0.335
2.395
5.175
7.407
78.571
1.272
7.337
2.634

0.000
0.000
0.335
2.395
5.175
7.407
78.571
1.272
7.337
2.634

0.000
0.000
0.335
3.029
5.175
7.407
78.571
1.558
7.337
2.864

0.000
0.000
0.335
3.029
6.629
7.407
78.571
1.558
8.589
3.103

0.000
0.000
0.713
3.726
9.741
18.981
78.571
2.012
12.592
4.210

0.000
0.000
1.094
4.088
10.569
18.981
78.571
2.322
13.303
4.590

0.000
0.000
1.094
4.461
11.450
18.981

2.479
14.063
4.850

0.000
0.000
1.094
5.234
14.232
18.981

2.802
16.473
5.519

0.000
0.000
1.490
6.454
19.218
18.981

3.467
20.801
6.768

2.703
0.000
1.490
7.337
21.478
18.981

3.992
22.744
7.503

2.703
0.000
2.350
8.302
21.478
18.981

4.733
22.744
8.130

2.703
0.000
2.350
9.330
22.820
18.981

5.122
23.915
8.626

2.703
1.695
2.822
10.958
24.236
18.981

6.133
25.162
9.660

2.703
1.695
3.308
13.234
31.664
18.981

7.175
31.727
11.440

Cohort Formed 1/1/1971

Cohort Formed 1/1/1972

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Cohort Formed 1/1/1973
Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

40
81
310
443
206
26
5
874
237
1,111

0.000
0.000
0.000
0.457
0.000
3.922
44.444
0.231
1.282
0.454

0.000
0.000
0.000
0.689
1.008
3.922
44.444
0.348
2.165
0.732

0.000
0.000
0.000
1.168
2.061
3.922
44.444
0.586
3.091
1.111

0.000
0.000
0.000
1.416
2.617
3.922
44.444
0.708
3.579
1.306

0.000
0.000
0.000
1.931
3.206
3.922
72.222
0.957
4.607
1.707

0.000
0.000
0.000
2.470
4.447
3.922
72.222
1.214
5.688
2.121

0.000
0.000
0.000
2.470
4.447
3.922
72.222
1.214
5.688
2.121

0.000
0.000
0.000
3.059
4.447
3.922
72.222
1.486
5.688
2.344

0.000
0.000
0.000
3.059
5.951
3.922
72.222
1.486
6.994
2.575

0.000
0.000
0.366
3.710
9.936
15.931
72.222
1.919
11.816
3.766

0.000
0.000
0.737
4.386
10.774
15.931
72.222
2.362
12.545
4.257

0.000
0.000
0.737
5.081
10.774
15.931

2.663
12.545
4.508

0.000
0.000
0.737
6.164
12.623
15.931

3.126
14.180
5.156

0.000
0.000
1.124
7.301
17.616
15.931

3.763
18.603
6.366

2.703
0.000
1.124
8.122
21.025
15.931

4.265
21.600
7.221

2.703
0.000
1.966
9.018
21.025
15.931

4.974
21.600
7.828

2.703
0.000
1.966
9.976
22.353
15.931

5.346
22.787
8.307

2.703
1.613
2.424
12.010
23.752
15.931

6.507
24.053
9.474

2.703
1.613
2.897
14.156
32.466
15.931

7.507
31.978
11.371

2.703
1.613
3.401
14.156
34.036
15.931

7.720
33.395
11.738

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

44
88
307
434
196
30
2
873
228
1,101

0.000
0.000
0.000
0.000
0.000
10.345
0.000
0.000
1.342
0.275

0.000
0.000
0.000
0.477
1.090
10.345
0.000
0.235
2.282
0.651

0.000
0.000
0.000
0.723
1.668
10.345
0.000
0.355
2.779
0.845

0.000
0.000
0.000
1.235
2.281
10.345
50.000
0.600
3.827
1.242

0.000
0.000
0.000
1.771
3.575
10.345
50.000
0.852
4.930
1.652

0.000
0.000
0.000
1.771
3.575
10.345
50.000
0.852
4.930
1.652

0.000
0.000
0.000
2.357
3.575
10.345
50.000
1.120
4.930
1.872

0.000
0.000
0.000
2.357
4.356
14.943
50.000
1.120
6.250
2.101

0.000
1.274
0.366
3.006
8.461
24.663
50.000
1.689
11.111
3.399

0.000
1.274
0.737
3.678
9.325
24.663
50.000
2.126
11.849
3.884

0.000
1.274
0.737
4.371
9.325
24.663

2.423
11.849
4.134

0.000
1.274
0.737
5.454
11.204
24.663

2.879
13.497
4.774

0.000
1.274
1.122
5.834
18.267
24.663

3.193
19.707
5.970

2.439
1.274
1.122
6.658
21.696
24.663

3.687
22.699
6.815

2.439
1.274
1.953
7.558
21.696
24.663

4.384
22.699
7.414

2.439
1.274
1.953
8.516
23.058
24.663

4.749
23.907
7.886

2.439
2.816
2.403
10.040
25.908
24.663

5.698
26.487
9.035

2.439
2.816
2.866
12.182
34.711
24.663

6.677
34.580
10.902

2.439
2.816
3.366
12.182
36.303
24.663

6.886
36.034
11.264

2.439
2.816
3.366
12.182
38.123
24.663

6.886
37.674
11.461

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

51
103
319
417
200
33
2
890
235
1,125

0.000
0.000
0.000
0.000
1.026
6.154
0.000
0.000
1.743
0.360

0.000
0.000
0.000
0.000
2.107
6.154
0.000
0.000
2.659
0.545

0.000
0.000
0.000
0.262
3.249
6.154
50.000
0.118
4.105
0.925

0.000
0.000
0.000
0.810
3.850
9.566
50.000
0.362
5.117
1.317

0.000
0.000
0.000
0.810
3.850
9.566
50.000
0.362
5.117
1.317

0.000
0.000
0.000
1.410
3.850
9.566
50.000
0.619
5.117
1.527

0.000
0.000
0.000
1.410
4.573
13.586
50.000
0.619
6.329
1.744

0.000
1.047
0.000
2.396
8.405
22.016
50.000
1.164
10.820
2.979

0.000
1.047
0.357
3.076
9.209
22.016
50.000
1.581
11.501
3.440

0.000
1.047
0.357
3.774
9.209
22.016

1.865
11.501
3.677

0.000
1.047
0.357
4.859
10.972
22.016

2.300
13.034
4.285

0.000
1.047
0.730
5.239
17.601
22.016

2.598
18.804
5.418

2.041
1.047
0.730
6.059
20.812
22.016

3.068
21.572
6.217

2.041
2.254
1.535
6.508
21.994
22.016

3.730
22.584
6.924

2.041
2.254
1.535
7.464
23.262
22.016

4.075
23.674
7.369

2.041
3.507
1.973
9.476
24.585
31.764

5.151
25.987
8.602

2.041
3.507
2.880
11.581
31.379
43.137

6.260
33.208
10.511

2.041
3.507
3.370
11.581
32.839
43.137

6.457
34.492
10.850

2.041
3.507
3.898
11.581
34.458
43.137

6.671
35.901
11.219

2.041
3.507
3.898
11.581
34.458
43.137

6.671
35.901
11.219

Cohort Formed 1/1/1974

Moodys Special Comment

Cohort Formed 1/1/1975

39

40

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*

Moodys Special Comment

Cohort Formed 1/1/1976


Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

66
109
368
376
205
28
2
919
235
1,154

0.000
0.000
0.000
0.000
1.000
0.000
0.000
0.000
0.871
0.175

0.000
0.000
0.000
0.281
2.053
0.000
50.000
0.112
2.245
0.535

0.000
0.000
0.000
0.575
3.157
3.922
50.000
0.227
3.683
0.906

0.000
0.000
0.000
0.575
3.157
3.922
50.000
0.227
3.683
0.906

0.000
0.000
0.000
0.897
3.772
3.922
50.000
0.348
4.219
1.104

0.000
0.000
0.000
0.897
4.433
8.608
50.000
0.348
5.366
1.309

0.000
0.985
0.000
2.300
7.244
18.489
50.000
0.988
9.018
2.471

0.000
0.985
0.615
3.027
7.983
18.489
50.000
1.512
9.665
3.015

0.000
0.985
0.615
3.773
7.983
18.489

1.779
9.665
3.239

0.000
0.985
0.615
4.935
9.597
18.489

2.191
11.116
3.814

0.000
0.985
1.274
5.341
15.624
18.489

2.617
16.550
5.012

1.667
0.985
1.274
6.213
18.534
18.489

3.065
19.158
5.773

1.667
2.137
2.353
6.213
19.613
18.489

3.693
20.121
6.445

1.667
2.137
2.353
7.233
20.761
18.489

4.021
21.151
6.867

1.667
3.330
2.742
9.384
21.962
31.029

5.041
23.326
8.037

1.667
3.330
3.957
11.067
29.453
46.356

6.093
31.337
10.002

1.667
3.330
3.957
11.654
30.797
46.356

6.280
32.574
10.324

1.667
3.330
4.434
11.654
32.269
46.356

6.484
33.923
10.676

1.667
3.330
4.434
11.654
32.269
46.356

6.484
33.923
10.676

1.667
3.330
5.453
11.654
32.269
46.356

6.930
33.923
11.060

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

67
116
387
361
197
30
2
931
229
1,160

0.000
0.000
0.000
0.285
0.522
3.390
50.000
0.109
1.345
0.351

0.000
0.000
0.000
0.585
1.618
6.968
50.000
0.221
2.758
0.712

0.000
0.000
0.000
0.585
1.618
6.968
50.000
0.221
2.758
0.712

0.000
0.000
0.000
0.585
2.229
11.197
50.000
0.221
3.815
0.905

0.000
0.000
0.000
0.585
2.886
15.751
50.000
0.221
4.950
1.105

0.000
0.922
0.000
2.002
5.660
25.963
50.000
0.842
8.571
2.237

0.000
0.922
0.581
2.737
6.389
25.963
50.000
1.350
9.212
2.766

0.000
0.922
0.581
3.490
6.389
25.963

1.610
9.212
2.984

0.000
0.922
0.581
4.667
7.982
25.963

2.011
10.642
3.546

0.000
0.922
1.204
5.079
13.919
25.963

2.425
15.988
4.714

1.667
0.922
1.204
5.960
16.772
25.963

2.860
18.547
5.454

1.667
2.004
2.910
5.960
17.819
25.963

3.776
19.483
6.369

1.667
2.004
2.910
6.991
18.922
25.963

4.094
20.477
6.779

1.667
3.118
3.648
8.622
20.072
39.424

5.085
22.570
7.914

1.667
3.118
4.802
10.320
27.284
56.731

6.106
30.313
9.822

1.667
3.118
4.802
10.914
28.582
56.731

6.288
31.515
10.136

1.667
3.118
5.255
10.914
30.011
56.731

6.487
32.832
10.479

1.667
3.118
5.255
10.914
30.011
56.731

6.487
32.832
10.479

1.667
3.118
6.226
10.914
30.011
56.731

6.923
32.832
10.855

1.667
3.118
6.226
10.914
30.011
56.731

6.923
32.832
10.855

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

72
129
378
344
189
37
3
923
229
1,152

0.000
0.000
0.000
0.000
1.084
5.556
0.000
0.000
1.790
0.352

0.000
0.000
0.000
0.000
1.084
5.556
0.000
0.000
1.790
0.352

0.000
0.000
0.000
0.000
1.084
11.852
0.000
0.000
2.797
0.540

0.000
0.000
0.000
0.000
1.741
15.178
0.000
0.000
3.877
0.734

0.000
0.830
0.000
1.386
4.529
22.397
0.000
0.606
7.320
1.834

0.000
0.830
0.589
1.746
5.992
22.397
0.000
0.978
8.536
2.349

0.000
0.830
0.589
2.486
5.992
26.832
0.000
1.232
9.182
2.666

0.000
0.830
0.589
3.257
9.179
26.832
0.000
1.493
11.873
3.321

0.000
0.830
1.221
3.661
15.065
32.460
50.000
1.898
18.321
4.681

1.515
0.830
1.221
4.954
16.942
38.600
50.000
2.463
20.712
5.518

1.515
1.774
2.625
5.419
17.980
38.600
50.000
3.356
21.588
6.405

1.515
1.774
2.625
6.412
19.081
38.600
50.000
3.666
22.522
6.802

3.054
1.774
3.770
7.984
21.377
47.371
50.000
4.793
25.482
8.179

3.054
1.774
4.567
10.169
28.579
60.528
50.000
5.790
32.881
10.034

3.054
1.774
4.567
10.743
29.878
60.528
50.000
5.967
34.039
10.339

3.054
1.774
5.035
10.743
32.740
60.528
50.000
6.160
36.576
10.839

3.054
1.774
5.035
10.743
32.740
60.528
50.000
6.160
36.576
10.839

3.054
1.774
6.040
10.743
32.740
60.528
50.000
6.585
36.576
11.203

3.054
1.774
6.040
10.743
32.740
60.528
50.000
6.585
36.576
11.203

3.054
1.774
6.040
10.743
32.740
60.528
50.000
6.585
36.576
11.203

Cohort Formed 1/1/1977

Cohort Formed 1/1/1978

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Cohort Formed 1/1/1979
Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

76
130
374
338
210
34
3
918
247
1,165

0.000
0.000
0.000
0.000
0.490
0.000
0.000
0.000
0.418
0.087

0.000
0.000
0.000
0.314
0.490
6.452
0.000
0.113
1.307
0.358

0.000
0.000
0.000
0.314
1.051
9.853
0.000
0.113
2.256
0.544

0.000
0.816
0.000
1.673
3.407
17.212
0.000
0.708
5.255
1.601

0.000
0.816
0.581
2.026
5.876
17.212
0.000
1.073
7.367
2.293

0.000
0.816
0.581
2.388
9.144
21.687
0.000
1.197
10.745
3.004

0.000
0.816
0.581
3.142
11.866
26.582
0.000
1.452
13.691
3.738

0.000
0.816
1.203
3.142
18.315
38.329
50.000
1.716
21.224
5.262

1.429
0.816
1.203
4.408
19.886
45.181
50.000
2.270
23.297
6.067

1.429
1.743
2.594
4.865
20.747
45.181
50.000
3.146
24.052
6.920

1.429
1.743
2.594
5.850
21.663
45.181
50.000
3.452
24.860
7.304

2.878
1.743
3.347
8.473
24.547
56.145
50.000
4.719
28.295
8.900

2.878
1.743
4.132
10.652
31.684
56.145
50.000
5.700
34.814
10.694

2.878
1.743
4.132
11.221
32.777
56.145
50.000
5.874
35.832
10.989

2.878
1.743
4.597
11.221
35.136

50.000
6.064
38.045
11.472

2.878
1.743
4.597
11.221
35.136

50.000
6.064
38.045
11.472

2.878
1.743
5.585
11.221
35.136

50.000
6.482
38.045
11.825

2.878
1.743
5.585
11.221
35.136

50.000
6.482
38.045
11.825

2.878
1.743
5.585
11.221
35.136

50.000
6.482
38.045
11.825

2.878
1.743
5.585
11.221
35.136

50.000
6.482
38.045
11.825

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

89
127
383
337
209
41
6
936
256
1,192

0.000
0.000
0.000
0.000
0.000
4.938
33.333
0.000
1.613
0.343

0.000
0.000
0.000
0.000
0.531
7.543
33.333
0.000
2.472
0.520

0.000
0.000
0.273
0.998
3.855
15.822
33.333
0.458
6.517
1.706

0.000
0.000
0.830
1.344
5.014
21.730
33.333
0.809
8.406
2.363

0.000
0.000
0.830
1.700
8.691
28.119
33.333
0.929
12.421
3.231

0.000
0.000
0.830
2.809
11.883
31.625
33.333
1.298
15.577
4.126

0.000
0.000
1.723
2.809
17.960
44.057
55.556
1.678
22.893
5.780

1.242
0.917
2.036
3.636
20.178
48.719
55.556
2.344
25.361
6.762

1.242
1.843
3.036
4.522
21.000
48.719
55.556
3.185
26.042
7.571

1.242
1.843
3.036
5.933
23.694
48.719
55.556
3.623
28.261
8.299

2.508
1.843
3.759
8.435
26.520
60.115
55.556
4.835
32.181
9.937

2.508
1.843
4.513
10.510
34.628
68.092
55.556
5.773
39.957
11.902

2.508
1.843
4.513
11.595
36.863
68.092
55.556
6.107
41.894
12.464

2.508
1.843
4.956
11.595
39.268
68.092
55.556
6.289
43.988
12.924

2.508
1.843
4.956
11.595
39.268
68.092
55.556
6.289
43.988
12.924

2.508
1.843
5.904
11.595
39.268
68.092
55.556
6.691
43.988
13.261

2.508
1.843
5.904
11.595
39.268
68.092
55.556
6.691
43.988
13.261

2.508
1.843
5.904
11.595
40.664
68.092
55.556
6.691
45.192
13.441

2.508
1.843
5.904
11.595
40.664
68.092
55.556
6.691
45.192
13.441

2.508
1.843
6.428
11.595
40.664
68.092
55.556
6.915
45.192
13.630

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

93
132
391
337
244
45
6
953
295
1,248

0.000
0.000
0.000
0.000
0.000
4.598
0.000
0.000
0.703
0.163

0.000
0.000
0.264
0.634
3.587
11.843
0.000
0.328
4.771
1.344

0.000
0.000
0.264
1.968
4.998
16.954
0.000
0.778
6.714
2.129

0.000
0.000
0.264
2.659
7.983
25.122
0.000
1.009
10.421
3.120

0.000
0.000
0.264
3.735
11.622
28.059
0.000
1.365
13.875
4.144

0.000
0.000
1.144
3.735
18.292
41.443
20.000
1.734
21.768
6.086

1.227
0.844
1.455
4.135
20.749
41.443
40.000
2.252
24.324
7.013

1.227
2.546
2.117
4.989
21.438
41.443
40.000
3.070
24.891
7.778

1.227
2.546
2.117
6.343
24.460
41.443
40.000
3.496
27.374
8.581

2.493
2.546
2.837
8.726
28.521
51.203
40.000
4.672
32.103
10.376

2.493
2.546
3.591
10.199
36.664
57.302
40.000
5.429
39.732
12.248

2.493
2.546
3.591
11.213
38.724
57.302
40.000
5.753
41.479
12.785

2.493
2.546
4.038
11.213
40.952
57.302
40.000
5.929
43.382
13.223

2.493
2.546
4.038
11.213
40.952
57.302
40.000
5.929
43.382
13.223

2.493
2.546
4.995
11.213
40.952
57.302
40.000
6.318
43.382
13.545

2.493
2.546
4.995
11.213
40.952
57.302
40.000
6.318
43.382
13.545

2.493
2.546
4.995
11.213
42.279
57.302
40.000
6.318
44.503
13.717

2.493
2.546
4.995
11.213
43.654
57.302
40.000
6.318
45.659
13.894

2.493
2.546
5.523
11.213
43.654
57.302
40.000
6.536
45.659
14.075

2.493
3.881
6.057
11.985
43.654
57.302
40.000
7.204
45.659
14.631

Cohort Formed 1/1/1980

Moodys Special Comment

Cohort Formed 1/1/1981

41

42

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*

Moodys Special Comment

Cohort Formed 1/1/1982


Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

95
145
399
326
259
42
12
965
313
1,278

0.000
0.000
0.254
0.317
2.740
2.410
25.000
0.211
3.560
1.034

0.000
0.000
0.254
0.317
5.223
9.917
51.471
0.211
7.656
2.025

0.000
0.000
0.254
1.369
7.868
15.139
51.471
0.546
10.559
2.964

0.000
0.000
0.254
2.460
11.535
17.921
51.471
0.892
13.963
4.024

0.000
0.000
1.110
2.841
18.377
30.310
61.176
1.372
21.656
6.148

1.212
0.758
1.110
3.655
20.533
30.310
70.882
1.878
23.881
7.032

1.212
2.302
1.754
4.531
21.132
30.310
70.882
2.679
24.377
7.764

1.212
2.302
1.754
5.922
23.783
30.310
70.882
3.096
26.585
8.537

2.479
2.302
2.805
8.365
28.139
35.671
70.882
4.399
30.850
10.389

2.479
2.302
3.540
9.880
33.066
60.177
70.882
5.148
37.765
12.209

2.479
2.302
3.540
10.931
34.952
60.177
70.882
5.467
39.351
12.731

2.479
2.302
3.969
10.931
36.984
60.177
70.882
5.641
41.071
13.158

2.479
2.302
3.969
10.931
36.984
60.177
70.882
5.641
41.071
13.158

2.479
3.425
3.969
11.579
36.984
60.177
70.882
6.025
41.071
13.471

2.479
3.425
3.969
11.579
36.984
60.177
70.882
6.025
41.071
13.471

2.479
3.425
3.969
11.579
38.297
60.177
70.882
6.025
42.162
13.639

2.479
3.425
3.969
11.579
39.700
60.177
70.882
6.025
43.319
13.812

2.479
3.425
4.474
11.579
39.700
60.177
70.882
6.239
43.319
13.989

2.479
4.663
4.985
12.375
39.700
60.177
70.882
6.894
43.319
14.531

2.479
4.663
8.117
12.375
42.715
60.177
70.882
8.233
45.838
16.011

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

98
225
430
270
230
114
11
1,023
355
1,378

0.000
0.000
0.000
0.000
0.911
6.306
40.000
0.000
3.818
0.962

0.000
0.000
0.000
1.176
2.394
11.015
64.000
0.304
6.971
1.959

0.000
0.000
0.000
1.587
5.046
17.860
64.000
0.408
10.987
2.992

0.000
0.000
0.259
3.321
12.689
25.138
64.000
0.953
18.298
5.086

2.395
0.480
0.259
3.798
14.736
28.416
76.000
1.415
21.165
6.074

2.395
1.965
0.836
4.328
17.879
29.600
76.000
2.148
23.470
7.131

2.395
1.965
0.836
5.444
21.489
32.334
76.000
2.403
26.648
7.944

3.688
1.965
1.773
6.615
26.587
40.294
76.000
3.196
32.685
9.658

3.688
1.965
2.750
7.840
32.191
50.245
76.000
3.881
39.589
11.343

3.688
1.965
3.444
7.840
32.191
55.221
76.000
4.174
41.200
11.827

3.688
1.965
3.819
7.840
33.619
58.020
76.000
4.333
42.995
12.225

3.688
1.965
3.819
7.840
33.619
58.020
76.000
4.333
42.995
12.225

3.688
2.668
3.819
7.840
35.199
58.020
76.000
4.510
43.996
12.518

3.688
2.668
3.819
7.840
35.199
58.020
76.000
4.510
43.996
12.518

3.688
2.668
3.819
7.840
37.025
58.020
76.000
4.510
45.162
12.675

3.688
2.668
3.819
7.840
38.904
58.020
76.000
4.510
46.395
12.837

3.688
2.668
3.819
8.795
38.904
58.020
76.000
4.707
46.395
13.002

3.688
2.668
4.288
10.746
40.908
58.020
76.000
5.310
47.702
13.678

3.688
3.456
6.212
11.748
45.128
58.020
76.000
6.542
50.455
15.061

3.688
4.271
6.716
13.813
49.518
58.020
76.000
7.394
53.327
16.138

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

82
0.000
243
0.000
460
0.000
276
0.368
246
0.833
120
6.723
2 100.000
1,061
0.095
368
3.324
1,429
0.922

0.000
0.000
0.225
0.368
3.932
12.768

0.193
7.401
2.023

0.000
0.000
0.461
0.782
12.600
20.114

0.398
15.576
4.186

1.429
0.881
0.708
1.244
14.778
23.988

0.943
18.355
5.262

1.429
1.797
1.482
1.760
18.511
27.133

1.636
21.863
6.594

1.429
1.797
1.751
2.846
22.038
32.073

1.998
25.893
7.725

3.018
1.797
2.593
3.992
27.551
42.299

2.752
33.023
9.720

3.018
1.797
3.470
5.798
34.410
49.511

3.536
39.922
11.608

3.018
1.797
4.091
5.798
35.374
51.755

3.815
41.250
12.060

3.018
1.797
4.091
6.498
36.451
56.834

3.967
43.481
12.555

3.018
1.797
4.091
6.498
36.451
56.834

3.967
43.481
12.555

3.018
2.434
4.091
6.498
37.674
56.834

4.136
44.324
12.831

3.018
2.434
4.091
6.498
37.674
56.834

4.136
44.324
12.831

3.018
2.434
4.091
6.498
39.140
56.834

4.136
45.337
12.979

3.018
2.434
4.091
6.498
39.140
60.945

4.136
46.452
13.133

3.018
2.434
4.091
7.433
39.140
60.945

4.326
46.452
13.290

3.018
2.434
4.515
9.362
40.785
60.945

4.904
47.629
13.931

3.018
3.152
6.247
10.363
44.169
60.945

6.089
50.065
15.243

3.018
3.894
6.700
12.436
47.658
60.945

6.909
52.593
16.266

3.018
3.894
7.186
13.523
47.658
60.945

7.341
52.593
16.624

Cohort Formed 1/1/1983

Cohort Formed 1/1/1984

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Cohort Formed 1/1/1985
Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

83
303
522
273
294
148
5
1,181
447
1,628

0.000
0.000
0.000
0.000
1.404
8.219
0.000
0.000
3.670
1.005

0.000
0.000
0.209
1.220
6.702
17.651
0.000
0.365
10.322
3.071

0.000
0.000
1.329
1.220
9.288
23.837
0.000
0.860
14.173
4.452

0.000
0.771
2.281
1.739
12.758
27.260
33.333
1.606
17.918
5.958

0.000
0.771
2.530
2.837
18.297
31.508
33.333
1.942
22.958
7.404

1.587
0.771
3.581
3.412
23.889
43.362
33.333
2.646
30.434
9.580

1.587
0.771
4.404
5.218
30.715
50.125
33.333
3.378
37.082
11.496

1.587
0.771
4.693
5.865
32.221
52.392
33.333
3.641
38.723
12.015

1.587
0.771
4.693
6.575
33.058
57.682
33.333
3.785
40.562
12.473

1.587
0.771
4.693
6.575
33.058
57.682
33.333
3.785
40.562
12.473

1.587
1.363
4.693
6.575
34.998
57.682
100.000
3.947
42.684
12.989

1.587
1.363
4.693
6.575
34.998
57.682

3.947
42.684
12.989

1.587
1.363
4.693
6.575
36.119
57.682

3.947
43.503
13.129

1.587
1.363
4.693
6.575
36.119
61.914

3.947
44.407
13.273

1.587
1.363
4.693
8.595
36.119
61.914

4.313
44.407
13.571

1.587
1.363
5.096
10.696
37.464
61.914

4.873
45.418
14.180

1.587
2.025
6.326
11.792
41.728
61.914

5.827
48.629
15.430

1.587
2.710
6.753
14.068
44.641
61.914

6.619
50.838
16.402

1.587
2.710
7.207
15.262
44.641
61.914

7.036
50.838
16.742

1.587
2.710
7.207
15.262
44.641
61.914

7.036
50.838
16.742

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

109
298
580
306
359
185
10
1,293
554
1,847

0.000
0.000
0.000
1.356
2.035
11.732
23.529
0.318
5.644
1.901

0.000
0.000
0.189
1.356
5.928
17.696
23.529
0.404
10.207
3.291

0.000
0.774
0.783
3.068
8.515
21.694
40.523
1.225
13.493
4.800

0.000
0.774
1.198
3.961
13.539
25.731
40.523
1.608
18.111
6.280

0.000
1.205
1.853
5.360
20.136
35.503
40.523
2.309
25.598
8.614

0.000
1.205
2.306
6.831
28.096
45.058
40.523
2.830
33.864
10.851

0.000
1.205
2.306
7.890
29.924
49.513
40.523
3.054
36.392
11.547

0.000
1.205
2.306
8.484
32.672
52.995
40.523
3.177
39.272
12.220

0.000
0.000
1.205
1.788
2.306
2.306
8.484
8.484
33.416 34.208
52.995 55.405
40.523 100.000
3.177
3.316
39.803 41.531
12.324 12.760

0.000
1.788
2.306
8.484
34.208
55.405

3.316
41.531
12.760

0.000
1.788
2.306
8.484
36.102
55.405

3.316
42.891
12.999

0.000
1.788
2.306
8.484
36.102
58.591

3.316
43.657
13.123

0.000
1.788
2.306
10.186
36.102
62.355

3.633
44.486
13.507

0.000
1.788
2.981
11.071
38.447
62.355

4.118
46.221
14.164

0.000
2.456
4.021
11.983
43.421
62.355

4.945
49.898
15.374

0.000
3.141
4.750
13.856
44.721
62.355

5.802
50.861
16.211

0.000
3.141
5.138
13.856
46.053
62.355

5.982
51.854
16.503

0.000
3.141
5.138
13.856
46.053
62.355

5.982
51.854
16.503

0.000
3.141
5.545
13.856
47.492
62.355

6.173
52.912
16.814

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

134
316
554
336
464
265
10
1,340
739
2,079

0.000
0.000
0.000
0.000
2.718
6.226
20.000
0.000
4.234
1.499

0.000
0.000
0.000
1.060
4.484
13.488
30.667
0.247
8.143
3.006

0.000
0.000
0.402
1.433
9.281
20.350
30.667
0.505
13.614
4.970

0.000
0.384
1.243
3.004
16.321
31.894
30.667
1.314
22.131
8.132

0.000
0.384
1.677
4.652
24.045
43.128
30.667
1.875
30.915
10.989

0.000
0.384
1.677
5.967
27.478
46.575
30.667
2.174
34.285
12.073

0.000
0.384
1.677
6.934
30.980
48.630
30.667
2.392
37.249
12.955

0.000
0.384
1.677
6.934
32.102
48.630
30.667
2.392
37.997
13.129

0.000
0.918
1.677
6.934
33.336
49.999
65.333
2.515
39.655
13.590

0.000
0.918
1.677
6.934
34.031
49.999
65.333
2.515
40.120
13.687

0.000
0.918
1.677
7.582
35.620
49.999
65.333
2.649
41.170
13.994

0.000
0.918
1.677
7.582
36.521
51.960
65.333
2.649
42.371
14.209

0.000
0.918
1.677
8.983
36.521
54.144
65.333
2.933
43.033
14.542

0.000
0.918
2.000
9.711
38.619
58.618
65.333
3.223
45.812
15.225

0.000
1.545
2.662
11.959
40.831
60.982
65.333
4.116
48.009
16.278

0.000
2.189
3.356
12.728
44.381
66.364
65.333
4.732
51.978
17.373

0.000
2.189
4.088
12.728
45.660
66.364
65.333
5.053
52.843
17.755

0.000
2.189
4.088
12.728
45.660
66.364
65.333
5.053
52.843
17.755

0.000
2.189
4.471
12.728
47.053
66.364
65.333
5.224
53.796
18.027

Cohort Formed 1/1/1986

Moodys Special Comment

Cohort Formed 1/1/1987

43

44

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*

Moodys Special Comment

Cohort Formed 1/1/1988


Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

139
344
554
328
507
329
11
1,365
847
2,212

0.000
0.000
0.000
0.000
1.247
6.359
28.571
0.000
3.598
1.355

0.000
0.316
0.383
0.334
6.536
13.427
28.571
0.314
9.516
3.703

0.000
0.647
0.981
1.039
12.911
26.056
28.571
0.806
18.200
7.021

0.000
0.647
1.393
2.502
20.723
37.282
28.571
1.317
27.169
10.234

0.000
0.647
1.393
3.665
23.785
41.443
28.571
1.589
30.581
11.426

0.000
0.647
1.393
4.520
27.011
46.535
28.571
1.787
34.410
12.616

0.000
0.647
1.393
4.520
27.935
47.397
28.571
1.787
35.296
12.845

0.000
1.107
1.393
4.520
28.954
50.432
64.286
1.899
37.282
13.416

0.000
1.107
1.393
4.520
30.086
50.432
64.286
1.899
38.024
13.588

0.000
1.107
1.393
5.081
31.375
51.703
64.286
2.021
39.276
13.950

0.000
1.107
1.393
5.081
32.101
57.647
64.286
2.021
41.648
14.425

0.000
1.107
1.393
5.692
32.904
59.342
64.286
2.150
42.704
14.721

0.000
1.640
1.393
6.325
34.636
62.956
64.286
2.416
44.973
15.331

0.000
2.185
2.030
8.276
39.305
64.958
64.286
3.234
48.662
16.593

0.000
2.744
2.363
9.625
43.420
69.480
64.286
3.798
52.742
17.689

0.000
2.744
3.064
10.334
43.420
69.480
64.286
4.241
52.742
18.034

0.000
2.744
3.064
10.334
43.420
69.480
64.286
4.241
52.742
18.034

0.000
2.744
3.433
10.334
44.691
69.480
64.286
4.398
53.601
18.281

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

158
343
583
345
488
365
12
1,429
865
2,294

0.000
0.596
0.000
0.598
2.982
8.947
25.000
0.286
5.797
2.336

0.000
0.596
0.181
1.228
10.012
23.132
43.750
0.509
15.919
6.075

0.000
0.596
0.557
1.882
18.169
33.588
57.813
0.819
25.030
9.309

0.000
0.596
0.557
2.920
20.882
38.661
57.813
1.066
28.621
10.596

0.000
0.596
0.557
2.920
24.075
44.314
57.813
1.066
32.694
11.785

0.000
0.596
0.557
2.920
24.490
46.364
57.813
1.066
33.708
12.061

0.000
1.029
0.557
2.920
25.416
50.367
57.813
1.169
35.717
12.649

0.000
1.029
0.557
2.920
26.965
50.367
57.813
1.169
36.683
12.881

0.000
1.029
0.557
3.397
28.717
52.525
57.813
1.279
38.524
13.370

0.000
1.029
0.557
3.397
30.707
56.481
57.813
1.279
41.077
13.883

0.000
1.029
0.557
3.917
31.448
57.956
57.813
1.396
42.027
14.149

0.000
1.530
0.557
4.457
33.839
61.129
57.813
1.635
44.581
14.791

0.000
2.045
1.428
6.672
38.135
62.857
57.813
2.620
47.890
16.116

0.000
2.568
1.730
8.406
43.802
66.667
57.813
3.256
52.737
17.398

0.000
2.568
2.050
9.635
43.802
66.667
57.813
3.656
52.737
17.709

0.000
2.568
2.050
9.635
43.802
66.667
57.813
3.656
52.737
17.709

0.000
2.568
2.390
9.635
43.802
69.231
57.813
3.800
53.493
17.934

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

180
387
609
341
474
383
18
1,517
875
2,392

0.000
0.000
0.000
0.000
3.344
16.201
58.824
0.000
10.079
3.588

0.000
0.000
0.000
0.626
11.836
27.591
67.059
0.140
19.770
6.923

0.000
0.000
0.000
0.626
14.392
34.542
67.059
0.140
24.094
8.284

0.000
0.000
0.000
0.626
17.384
39.667
67.059
0.140
27.885
9.408

0.000
0.000
0.000
0.359
0.000
0.000
0.626
0.626
18.156 19.438
41.359 44.071
67.059 100.000
0.140
0.232
29.003 31.038
9.717 10.313

0.000
0.359
0.000
0.626
20.367
44.881
0.000
0.232
31.891
10.523

0.000
0.359
0.000
0.626
22.409
46.850
0.000
0.232
33.819
10.967

0.000
0.359
0.000
0.626
24.120
50.601
0.000
0.232
36.044
11.434

0.000
0.359
0.000
1.136
24.745
53.641
0.000
0.338
37.290
11.759

0.000
0.359
0.264
1.664
27.432
57.013
0.000
0.557
39.987
12.431

0.000
0.800
0.535
4.373
32.487
58.923
0.000
1.344
43.890
13.734

0.000
1.252
0.817
6.617
36.435
65.409
0.000
2.041
48.186
15.000

0.000
1.252
1.114
7.806
36.435
65.409
0.000
2.405
48.186
15.286

0.000
1.252
1.114
7.806
36.435
65.409
0.000
2.405
48.186
15.286

0.000
1.252
1.429
7.806
36.435
68.704
0.000
2.536
48.872
15.493

Cohort Formed 1/1/1989

Cohort Formed 1/1/1990

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Cohort Formed 1/1/1991
Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

168
434
604
373
375
329
20
1,579
724
2,303

0.000
0.000
0.000
0.272
5.352
14.563
36.842
0.065
10.395
3.226

0.000
0.000
0.000
0.272
6.629
23.676
36.842
0.065
15.111
4.586

0.000
0.000
0.000
0.272
8.474
30.511
36.842
0.065
19.064
5.665

0.000
0.000
0.000
0.272
8.901
32.709
36.842
0.065
20.227
5.962

0.000
0.308
0.000
0.272
9.855
36.610
47.368
0.149
22.616
6.597

0.000
0.308
0.000
0.272
10.888
37.383
47.368
0.149
23.506
6.798

0.000
0.308
0.000
0.272
12.591
40.166
47.368
0.149
25.514
7.223

0.000
0.308
0.000
0.272
14.519
43.585
47.368
0.149
27.848
7.671

0.000
0.308
0.000
0.693
15.950
46.271
47.368
0.247
29.613
8.059

0.000
0.308
0.258
1.127
19.048
49.298
47.368
0.447
32.506
8.703

0.000
0.695
0.521
3.343
24.056
51.046
73.684
1.168
36.724
9.954

0.000
1.095
0.793
5.185
27.716
59.039
73.684
1.807
41.390
11.170

0.000
1.095
1.078
6.159
27.716
59.039
73.684
2.141
41.390
11.445

0.000
1.095
1.078
6.159
28.779
59.039
73.684
2.141
42.096
11.541

0.000
1.095
1.381
6.159
28.779
62.316
73.684
2.262
42.863
11.742

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

156
446
693
385
358
260
24
1,680
644
2,322

0.000
0.000
0.000
0.000
0.299
9.035
26.667
0.000
4.833
1.306

0.000
0.000
0.000
0.000
1.000
17.541
32.099
0.000
8.908
2.350

0.000
0.000
0.000
0.000
1.000
20.906
32.099
0.000
10.271
2.676

0.000
0.275
0.000
0.000
1.894
25.639
40.087
0.075
12.857
3.313

0.000
0.275
0.000
0.000
2.382
27.999
40.087
0.075
14.013
3.559

0.000
0.275
0.000
0.000
3.461
30.768
52.070
0.075
15.967
3.949

0.000
0.275
0.000
0.000
5.260
34.146
52.070
0.075
18.203
4.360

0.000
0.275
0.000
0.392
6.599
36.754
52.070
0.162
19.889
4.718

0.000
0.275
0.221
0.795
8.779
42.637
52.070
0.342
23.122
5.384

0.000
0.621
0.450
2.861
13.398
44.324
76.035
0.993
27.102
6.542

0.000
0.621
0.928
4.162
17.542
52.004
76.035
1.480
31.980
7.678

0.000
0.621
1.177
5.088
17.542
52.004
76.035
1.786
31.980
7.935

0.000
0.621
1.177
5.088
18.529
52.004
76.035
1.786
32.641
8.025

0.000
0.621
1.177
5.591
19.608
52.004
76.035
1.897
33.361
8.213

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

131
461
736
456
389
255
23
1,784
667
2,451

0.000
0.000
0.000
0.000
0.549
5.785
28.571
0.000
3.509
0.940

0.000
0.000
0.000
0.000
0.549
10.035
28.571
0.000
5.143
1.357

0.000
0.000
0.000
0.256
2.604
15.488
42.177
0.065
8.807
2.292

0.000
0.000
0.000
0.256
3.350
17.366
50.437
0.065
10.164
2.605

0.000
0.000
0.000
0.256
4.610
20.330
50.437
0.065
11.979
2.993

0.000
0.000
0.000
0.546
6.034
23.016
50.437
0.139
13.779
3.404

0.000
0.000
0.000
1.151
7.081
28.114
50.437
0.290
16.127
3.956

0.000
0.000
0.191
1.772
8.807
34.853
50.437
0.524
19.445
4.721

0.000
0.000
0.589
3.043
12.455
38.724
75.219
1.010
23.423
5.786

0.000
0.000
1.006
4.039
16.375
43.049
75.219
1.432
27.306
6.763

0.000
0.000
1.225
4.741
16.375
44.653
75.219
1.698
27.784
7.059

0.000
0.000
1.225
4.741
16.375
46.439
75.219
1.698
28.308
7.136

0.000
0.000
1.225
5.124
17.220
46.439
75.219
1.795
28.868
7.299

Cohort Formed 1/1/1992

Moodys Special Comment

Cohort Formed 1/1/1993

45

46

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*

Moodys Special Comment

Cohort Formed 1/1/1994


Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

125
419
875
528
442
332
41
1,947
815
2,762

0.000
0.000
0.000
0.000
0.236
3.859
5.128
0.000
1.938
0.560

0.000
0.000
0.000
0.202
1.773
9.270
13.753
0.055
5.354
1.547

0.000
0.000
0.000
0.202
2.051
12.489
24.314
0.055
7.237
2.048

0.000
0.000
0.000
0.421
2.984
14.376
24.314
0.114
8.491
2.404

0.000
0.000
0.000
0.649
4.751
18.509
24.314
0.176
11.021
3.023

0.000
0.000
0.000
1.838
7.137
23.513
30.895
0.495
14.434
3.977

0.000
0.000
0.150
2.330
9.772
29.854
30.895
0.692
18.219
4.868

0.000
0.000
0.461
3.604
12.091
35.115
56.024
1.168
22.016
5.962

0.000
0.000
0.783
4.403
15.577
39.886
56.024
1.522
25.812
6.936

0.000
0.000
0.953
4.973
16.140
43.050
56.024
1.746
27.235
7.363

0.000
0.000
0.953
4.973
16.140
46.572
56.024
1.746
28.425
7.558

0.000
0.000
0.953
5.291
16.819
46.572
56.024
1.829
28.858
7.695

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

122
486
967
550
455
456
62
2,125
973
3,098

0.000
0.000
0.000
0.000
0.686
4.767
12.389
0.000
3.319
1.025

0.000
0.000
0.000
0.000
0.935
7.267
21.042
0.000
5.085
1.550

0.000
0.000
0.000
0.000
2.044
10.107
21.042
0.000
6.943
2.071

0.000
0.000
0.000
0.421
3.611
13.783
26.785
0.108
9.693
2.864

0.000
0.000
0.000
1.515
6.415
18.123
33.928
0.385
13.383
3.957

0.000
0.000
0.128
1.970
9.111
23.877
38.647
0.558
17.498
5.016

0.000
0.000
0.392
3.382
11.556
32.468
64.480
1.035
23.391
6.676

0.000
0.000
0.803
3.874
14.190
39.630
73.360
1.345
28.158
7.931

0.000
0.000
0.947
4.137
15.686
43.617
73.360
1.476
30.719
8.549

0.000
0.000
0.947
4.137
15.686
45.572
86.680
1.476
31.874
8.769

0.000
0.000
0.947
4.435
16.289
46.318
86.680
1.549
32.510
8.944

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

128
510
1,068
633
477
514
75
2,339
1,066
3,405

0.000
0.000
0.000
0.000
0.000
1.439
14.184
0.000
1.670
0.514

0.000
0.000
0.000
0.000
0.719
4.443
20.541
0.000
3.860
1.155

0.000
0.000
0.000
0.173
2.344
9.254
27.848
0.047
7.367
2.146

0.000
0.000
0.000
0.710
5.649
13.035
41.376
0.193
11.532
3.306

0.000
0.000
0.111
1.269
7.923
19.107
47.389
0.394
15.688
4.449

0.000
0.000
0.342
2.620
11.358
26.848
67.624
0.863
21.710
6.200

0.000
0.000
0.581
3.223
13.603
34.639
72.605
1.134
26.455
7.456

0.000
0.000
0.708
3.649
15.318
38.789
72.605
1.306
29.121
8.130

0.000
0.000
0.708
3.876
15.318
41.237
86.302
1.367
30.394
8.419

0.000
0.000
0.708
4.120
16.363
41.954
86.302
1.430
31.246
8.623

Cohort Formed 1/1/1995

Cohort Formed 1/1/1996

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Cohort Formed 1/1/1997
Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

127
560
1,136
733
560
591
77
2,556
1,2282
3,784

0.000
0.000
0.000
0.000
0.190
2.124
14.865
0.000
2.057
0.652

0.000
0.000
0.000
0.143
1.471
7.468
27.715
0.041
6.014
1.865

0.000
0.000
0.000
0.735
5.278
12.009
40.287
0.212
10.625
3.274

0.000
0.000
0.100
1.353
8.376
17.859
50.902
0.432
15.364
4.694

0.000
0.000
0.307
2.479
11.389
28.074
73.075
0.844
22.553
6.855

0.000
0.000
0.523
3.150
14.078
34.984
77.218
1.130
27.212
8.211

0.000
0.000
0.866
3.507
15.787
38.798
77.218
1.383
29.781
8.981

0.000
0.000
0.866
3.698
15.787
41.488
77.218
1.436
30.969
9.272

0.000
0.000
0.866
4.109
16.639
42.003
77.218
1.549
31.633
9.492

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

114
604
1,162
872
672
742
113
2,752
1,527
4,279

0.000
0.000
0.000
0.117
0.624
4.246
15.238
0.037
3.442
1.227

0.000
0.000
0.000
0.599
2.857
11.600
31.644
0.190
9.154
3.233

0.000
0.000
0.093
1.098
6.015
18.931
41.322
0.387
14.780
5.178

0.000
0.000
0.287
2.134
9.955
29.899
62.905
0.795
23.266
8.134

0.000
0.000
0.489
3.353
12.971
37.062
67.743
1.265
28.359
9.997

0.000
0.000
0.811
3.642
14.949
41.821
71.776
1.491
31.757
11.116

0.000
0.219
0.811
3.953
15.230
45.918
74.341
1.636
33.961
11.807

0.000
0.219
0.811
4.288
16.162
46.574
74.341
1.737
34.702
12.066

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

105
644
1,184
978
723
851
212
2,911
1,786
4,697

0.000
0.000
0.000
0.103
1.006
5.983
20.438
0.035
5.696
2.157

0.000
0.000
0.000
0.637
3.320
15.050
31.466
0.215
12.260
4.667

0.000
0.000
0.182
1.414
6.598
26.066
52.956
0.550
21.305
8.112

0.000
0.000
0.372
2.697
9.444
35.258
59.323
1.056
27.479
10.553

0.000
0.000
0.670
3.074
11.264
39.882
65.721
1.303
31.008
11.848

0.000
0.198
0.670
3.345
11.723
43.545
70.292
1.434
33.291
12.623

0.000
0.198
0.670
3.632
12.997
44.588
70.292
1.526
34.322
12.976

Cohort Formed 1/1/1998

Moodys Special Comment

Cohort Formed 1/1/1999

47

48

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*

Moodys Special Comment

Cohort Formed 1/1/2000


Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

123
645
1,247
1,073
583
1,032
267
3,088
1,882
4,970

0.000
0.000
0.000
0.380
0.887
5.475
20.000
0.132
6.127
2.385

0.000
0.000
0.169
0.873
2.782
16.060
43.641
0.371
15.833
6.112

0.000
0.000
0.345
2.226
4.636
25.406
54.401
0.906
22.967
8.994

0.000
0.000
0.621
2.674
6.007
30.510
61.566
1.170
27.047
10.551

0.000
0.000
0.718
2.914
6.007
33.724
67.171
1.290
29.392
11.381

0.000
0.000
0.820
3.295
6.568
35.741
68.230
1.458
30.751
11.900

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Year 5

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

120
713
1,303
1,078
523
984
257
3,214
1,764
4,978

0.000
0.000
0.156
0.189
1.575
9.319
34.227
0.127
10.554
3.783

0.000
0.000
0.400
1.672
3.490
19.660
46.637
0.721
18.580
6.899

0.000
0.000
0.655
1.990
4.894
25.592
57.677
0.931
23.658
8.685

0.000
0.000
0.655
2.217
4.894
28.916
62.968
1.005
26.081
9.474

0.000
0.000
0.655
2.701
5.760
30.901
64.943
1.162
27.636
10.025

Ratings

No.
Issuers

Year 1

Year 2

Year 3

Year 4

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

132
745
1,308
1,193
544
766
293
3,378
1,603
4,981

0.000
0.000
0.156
1.206
1.533
5.062
30.216
0.485
8.426
3.003

0.000
0.000
0.320
1.481
3.202
10.700
43.822
0.645
13.976
4.804

0.000
0.000
0.320
1.578
3.889
13.314
51.847
0.679
16.641
5.598

0.000
0.000
0.320
1.786
4.894
15.560
54.857
0.751
18.459
6.142

Cohort Formed 1/1/2001

Cohort Formed 1/1/2002

Exhibit 42 - Cumulative Issuer-Weighted Global Corporate Default Rates by Annual Cohort, 1970-2005*
Cohort Formed 1/1/2003
Ratings

No.
Issuers

Year 1

Year 2

Year 3

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

133
692
1,295
1,166
555
754
283
3,286
1,592
4,878

0.000
0.000
0.000
0.000
0.941
2.648
21.832
0.000
5.314
1.701

0.000
0.000
0.000
0.000
1.147
4.216
34.614
0.000
8.093
2.549

0.000
0.000
0.000
0.197
1.822
6.382
37.059
0.070
9.715
3.067

Ratings

No.
Issuers

Year 1

Year 2

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

148
659
1,262
1,200
556
816
249
3,269
1,621
4,890

0.000
0.000
0.000
0.000
0.188
0.774
12.747
0.000
2.347
0.763

0.000
0.000
0.000
0.181
0.394
2.077
19.749
0.066
4.032
1.332

Ratings

No.
Issuers

Year 1

Aaa
Aa
A
Baa
Ba
B
Caa-C
Investment-Grade
Speculative-Grade
All Corporates

149
773
1,351
1,193
560
798
285
3,466
1,643
5,109

0.000
0.000
0.000
0.172
0.000
1.060
8.271
0.059
1.924
0.648

Cohort Formed 1/1/2004

Moodys Special Comment

Cohort Formed 1/1/2005

49

Appendix C - Revisions to Data and Exhibits


Certain tables and figures contained in the document published in January 2006 have been revised in the present version. The revisions include:
Page 25, Exhibit 24: rating transition matrix corrected
Page 33, Exhbit 33: default rate table corrected
Page 33, Exhibit 34: default rate table corrected
Page 34, Exhibit 35: default rate table corrected
Page 38, Exhibit 42: No. Issuers data corrected

50

Moodys Special Comment

Related Research
Special Comments:
Rating Transitions and Defaults Conditional on Rating Outlooks Revisited: 1995-2005, December 2005 (95748)
Bond Prices at Default and at Emergence from Bankruptcy for US Corporate Issuers, June 2005 (92891)
The Performance of Moody's Corporate Bond Ratings: December 2005 Quarterly Update, January 2006 (96330)
Corporate Europe: 2005 Review & 2006 Outlook, January 2006 (96321)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report
and that more recent reports may be available. All research may not be available to all clients.

Moodys Special Comment

51

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Report Number: 96546
Authors

Production Specialist

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Cassina Brooks

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financial situation and needs.

52

Moodys Special Comment