Our 6th Example is Ba2 Sub Debt, and its Benchmark is thus the Threshold
Generic Component =
Baseline Default Cost for the Benchmark + Index XS Spread Adjustment
The Generic Component calculations are as follows:
Benchmark Rating by Moody's Benchmark Baseline Annual Default Cost Index XS Spread (i.e. Benchmark Current Index Spread - Mean Index Spread)
x X% (as prescribed) x =
F (i.e. the Factor that phases out the Adjustment over the prescribed 3 years) Index XS Spread Adjustment (i.e. Index XS Spread x X% x F) Generic Component (i.e. 70 CTE Default Cost + Index XS Spread Adjustment)
1
2
3
4
5
1.000
0.667
0.333
0.000
0.000
16.3
10.8
5.4
0.0
0.0
34.5
29.0
23.6
18.2
18.2
A3 18.2 65.0 25%
Copyright © 2009 by the American Academy of Actuaries LRWG Asset Subgroup Presentation June 11, 2009 13