default and recovery rates of asia-pacific corporate bond and

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Corporate FinanceMoody’s

Special Comment

Table of Contents: Summary 1

Data and Methodology 2 Development of the Asia-Pacific Loan and Bond Market 3 Ratings Stability 6 Rating Drift: Overall Indication of Broad Credit Quality Trends 7 Rating Migration Rates: Changes in Credit Quality over Time 7 Defaults and Default Rates 8 Default Rates 11 Regional Differences in Rating Transitions and Cumulative Default Rates 13 Moody’s Ratings as Predictors of Default 15 Defaulted Bond Recovery Rates 16 Credit Loss Rates 17 Appendices 19 Moody’s Related Research 32

Analyst Contacts:

New York 1.212.553.1653

0 Jennifer Tennant Associate Analyst

0 Kenneth Emery Senior Vice President

0 Richard Cantor Team Managing Director

Hong Kong 852.2916.1121

7 Jennifer Elliott Group Managing Director

Sydney 61.2.9270.8117

24 Brian Cahill Managing Director – Australia

September 2007

Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990 -1H2007 Summary This Special Comment provides an updated analysis of Asia-Pacific (ex-Japan) corporate rating transitions, defaults and defaulted bond and loan recoveries.

The Asia-Pacific component of Moody’s-rated corporate universe grew rapidly over the past 17 years, from 66 rated bond and loan issuers at the end of 1990 to 352 issuers at the end of the first half of 2007. The speculative-grade share of these issuers also increased during this time period, from virtually zero in 1990 to almost one-quarter at the end of the first half of 2007.

At all individual rating categories Baa and below, default rates in the Asia-Pacific region were moderately higher than their global counterparts, largely reflecting the impact of defaults in the pulp and paper industries during 2001. The rating distributions of these two groups differ significantly, however, with the Asia-Pacific region having a greater share of higher-rated corporate bond and loan issuers. As a result, when aggregating across all rated issuers, historical default rates are slightly lower in the Asia-Pacific region than globally.

The majority of the region’s defaults took place during or shortly after the Asian financial crisis of 1997-1998. Indonesia accounted for the largest number of defaults and Korea had the largest default volume. In recent years, however, the Asia-Pacific region has experienced few defaults. In fact, there has not been a rated corporate default in the region since 2003.

2 September 2007 Special Comment Moody’s Corporate Finance – Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990 -1H2007

Special Comment Moody’s Corporate Finance

Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990 -1H2007

The Asia-Pacific region has experienced lower average recovery rates on defaulted debt than the global averages. However, this result is based on a relatively small sample of available Asia-Pacific loan and bond recoveries.

Rating accuracy as measured by the cumulative accuracy profile is modestly higher for credits in the Asia-Pacific region than for the global aggregates. Rating volatility as measured by frequency of all rating actions indicates that Asia-Pacific ratings have less stability than their global counterparts.

Data and Methodology

This report is the second comprehensive study of Asia-Pacific long-term corporate loan and bond ratings. It differs from the original report in that it excludes Japan from the analysis1 and includes loan as well as bond issuers. In this report, we analyze rating migrations, defaults, recovery rates and loss rates for loan and bond issuers domiciled in East Asia, India, Australia and New Zealand. Although Moody’s has rated corporate issuers in the Asia-Pacific region as early as 1950, this report focuses on the modern era of corporate loan and bond issuance for this region, 1990 to the present.2

The basic unit of study in this report is the (financial and non-financial) corporate bond or loan issuer’s individual rating history.3 Moody’s issuer ratings provide a rank ordering of credit risks among the universe of rated issuers, which generally is not dependent on either the size or number of loans or bonds that a firm may have outstanding. Additionally, in most cases, when a company defaults on one instrument, it defaults on all of them. Therefore, our default statistics report the frequency of issuer defaults rather than the frequency of issue defaults or debt volume in default. For the purpose of this study, only corporate debt is considered. We exclude any debt backed by a guarantor outside the corporate family (e.g. a bond issuance agency). We also exclude sovereign and sub-sovereign debt issuers.

The data for this study is from Moody’s global default database which covers defaults by both Moody’s rated and unrated issuers worldwide. Moody’s has compiled this information using a variety of sources, including various print and online publishing sources, press releases, press clippings, internal memoranda, and records of analysts’ contact with rated issuers.

Moody’s definition of default includes three types of default events:

I. a missed or delayed disbursement of interest and/or principal, including delayed payments made within a grace period;

II. filing for bankruptcy, administration, legal receivership, or other legal blocks (perhaps by regulators) to the timely payment of interest and/or principal; or

III. a distressed exchange whereby: (i) the issuer offers bondholders a new security or package of securities that amount to diminished financial obligation (such as preferred or common stock, or debt with a lower coupon or par amount); or (ii) the exchange had the apparent purpose of helping the borrower avoid default.

This definition is intended to capture those events that change the relationship between the loan/bond holder and loan/bond issuer from the one originally contracted, and which subjects the loan/bond holder to an

1 Japan is excluded from the analysis because the rating transition and default experience of issuers in Japan differs markedly from that of issuers from other regions. The relatively low incidence of Moody’s-rated defaults in Japan is quite striking. Only one Japanese issuer rated by Moody’s – Mycal Corp – has defaulted on its bonds since 1990. This extraordinarily low incidence of default on rated bonds can be explained by two factors: (1) higher credit quality since access to the bond market by speculative-grade companies is very limited in Japan compared to other countries; and (2) support from bank lenders and the government for companies facing financial distress, which has averted many bond defaults. 2 We begin our study in 1990 due to the relatively small number of rated issuers before this date. However, prior to 1990, two significant defaults occurred in this region, both in New Zealand by issuers with initial ratings of Aa3 -- DFC Financial (Overseas) Ltd. And DFC Overseas Investment Ltd. 3 When available, an issuer’s senior unsecured rating is used as an indicator of credit quality. Absent such a rating, Moody’s infers an equivalently senior unsecured rating from the issuer’s other rated debt obligations.




economic loss. We seek to identify only those economic losses that are the result of a credit event.4 Technical defaults (covenant violations, etc.) are not included in Moody’s definition of default.

For the purposes of this study, we measure recovery rates on defaulted bonds and loans using market bid prices quoted one month after default. Price data are derived from various market sources, including Bloomberg, Reuters and Interactive Data Corporation.

For the sake of consistency, the volume figures for loan and bond issuers in different countries have been converted to US dollars from their respective local currencies at the prevailing exchange rates at the time of default.

Development of the Asia-Pacific Loan and Bond Market

Fueled by rapid regional economic growth during the 1980s and a decline in bank lending capacity in the 1990s, an increasing number of Asia-Pacific corporations issued debt in domestic and international bond markets and obtained Moody’s credit ratings. At the end of 1990, there were 66 Moody’s-rated loan and bond issuers in the Asia-Pacific region that excluded Japan. This number has increased dramatically since then, reaching 352 issuers by the end of the first half of 2007 (see Exhibit 1). Despite the Asian economic crisis that hit the financial markets in 1997-98, the growth of Moody’s-rated corporate loan and bond issuance has continued, although at a slower pace in recent years.

Exhibit 1: Growth of Moody's Rated Issuers in the Asia-Pacific Bond and Loan Market (excluding Japan)

0

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400

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f Rat

ed Is

suer

s

As the rated debt market has grown during the past two decades, so has the share of the speculative-grade portion of the market. The vast majority of the issuers in the Asia-Pacific region were rated investment grade in 1990, but by the end of the first half of 2007 the share of speculative-grade issuers was almost 24%. In 1998, at the height of the Asian financial crisis, the speculative-grade share of the market reached a peak of 43.2%. Many of those speculative-grade issuers defaulted during the crisis, which brought the share down to its present level, still much higher than the share at the beginning of the sample period.

4 It is important to note that economic losses suffered by loan and bondholders due to changes in market conditions and/or bond prices are not considered defaults as long as the terms of the obligation are being met.




Exhibit 2: Speculative-Grade Share in the Asia-Pacific Bond and Loan Market (excluding Japan)

0%

20%

40%

60%

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100%

1990

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IG share SG share

Exhibit 3 presents information on the industry composition of Asia-Pacific issuers as of the first half of 2007. The majority of issuers fall into three broad industry categories: industrial (45.7%), banking (35.8%) and public utilities (10.2%).

Exhibit 3: Broad Industry Distribution of Asia-Pacific Issuers (excluding Japan), as of June 30, 2007

Broad Industry Number of Issuers Share

Banking 126 35.8%

Finance 9 2.6%

Industrial 161 45.7%

Insurance 4 1.1%

Other Non-Bank 3 0.9%

Public Utility 36 10.2%

Securities 2 0.6%

Transportation 11 3.1%

Total 352 100.0%

Exhibit 4 presents the domiciles of Moody’s-rated Asia-Pacific corporate issuers. Approximately one-third of Asia-Pacific domiciled issuers that currently have rated debt outstanding are located in Australia. Other countries with a significant share include Singapore, Hong Kong and Korea. Indonesia previously had a large presence in this market, but many of its issuers defaulted during the Asian financial crisis of 1997-1998.




Exhibit 4: Distribution of Asia-Pacific Corporate Issuers, by Country, as of June 30, 2007 Country Number of Issuers Share

Australia 116 33.0%

China 9 2.6%

Hong Kong 42 11.9%

India 11 3.1%

Indonesia 24 6.8%

Korea 37 10.5%

Malaysia 16 4.5%

Mongolia 1 0.3%

New Zealand 24 6.8%

Philippines 11 3.1%

Singapore 44 12.5%

Taiwan 4 1.1%

Thailand 12 3.4%

Vietnam 1 0.3%

Total 352 100.0%

Exhibit 5 shows the rating distribution of Asia-Pacific issuers and changes in the rating distribution over time. In 1990, 97% of the issuers were rated investment grade. However, the investment-grade share of issuers has decreased to 76.7% at June 30, 2007. And, within the investment-grade and speculative-grade sectors, the average rating has drifted downward. Much of the decline in average credit quality can be explained by the increase in the number of non-financial corporates relative to financial corporates in the overall rated population and the increase access of lower-rated issuers to the international bond and loan markets.




Exhibit 5: Changes in Rating Distribution of Asia-Pacific Corporate Issuers 12/31/90 12/31/95 12/31/00 6/30/07

Aaa 11 7 7 22

Aa 36 30 45 58

A 13 59 61 124

Baa 4 28 55 66

Ba 0 8 48 41

B 1 3 19 38

Caa-C 1 0 15 3

Investment Grade 64 124 168 270

Speculative Grade 2 11 82 82

All 66 135 250 352

Aaa 16.7% 5.2% 2.8% 6.3%

Aa 54.5% 22.2% 18.0% 16.5%

A 19.7% 43.7% 24.4% 35.2%

Baa 6.1% 20.7% 22.0% 18.8%

Ba 0.0% 5.9% 19.2% 11.6%

B 1.5% 2.2% 7.6% 10.8%

Caa-C 1.5% 0.0% 6.0% 0.9%

Investment Grade 97.0% 91.9% 67.2% 76.7%

Speculative Grade 3.0% 8.1% 32.8% 23.3%

All 100.0% 100.0% 100.0% 100.0%

Ratings Stability

Exhibit 6 displays the frequency of broad letter rating category changes for Asia-Pacific and the global universe of rated issuers.5 For example, -1 indicates a one whole-letter downgrade while a +2 indicates a two whole-letter upgrade. The vertical axis is the percentage of total issuers.

Exhibit 6: Annual Frequency of Broad Letter Rating Changes, 1990 - 1H2007

0%20%40%60%80%

100%

minus 3 ormore

minus 2 minus 1 no change 1 2 3 or more

Asia Pacif ic (excl. Japan) Global

5 These percentages are based on those issuers who were still rated at the end of the period – withdrawing and defaulted issuers were excluded.




Moody’s ratings are generally very stable over a one-year horizon. Despite the Asian financial crisis, ratings stability exhibited by Asia-Pacific issuers is similar to global issuers – the Asia-Pacific region has issuers that are almost as stable as their global counterparts (85.9% vs. 89.1%). On average, Asia-Pacific issuers experienced a 12% probability (6% downgrade + 6% upgrade) of having a one broad-letter rating change over a one-year horizon. Changes in excess of one broad letter rating change, whether upgrades or downgrades, are extremely infrequent over a one-year horizon.6

Rating Drift: Overall Indication of Broad Credit Quality Trends

“Rating drift”, the net percentage of upgrades relative to downgrades, provides a useful indicator of changes in aggregate credit quality. Positive drift indicates overall improvement in credit quality, while negative drift signals overall deterioration in credit quality. Alternatively, no drift (when upgrades and downgrades are roughly equal for a given time period) indicates a stable credit environment. Exhibit 7 compares the ratings drift for the Asia-Pacific region excluding Japan with the ratings drift of issuers globally.

Exhibit 7: Annual Rating Drift: Share of Issuers Upgraded Minus Share of Issuers Downgraded, 1990 - 1H2007

-50%-40%-30%-20%-10%

0%10%20%30%

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Global Asia Pacific excluding Japan

As is shown in the exhibit, credit quality trends for Asia-Pacific corporate issuers have been more variable than for global issuers and moderately correlated with global credit trends. The ratings drift in Asia-Pacific is a result of several factors, including the Asian financial crisis of 1997-1998 (negative drift) and recent efforts by companies to restructure their debt and repair balance sheets during the past few years of buoyant economic growth (positive drift).

Rating Migration Rates: Changes in Credit Quality over Time

Credit rating migration rate matrices present a more complete picture of changes in credit quality over time. Exhibit 8 shows average annual, whole-letter rating migration rates since 1990. Each cell in the matrix is the weighted-average percentage of issuers who held a given row’s rating at the beginning of the measurement period and the column rating at the end of the period, including defaults and withdrawals (WR).7 The weights correspond to the number of issuers in each monthly cohort.

The largest values in the transition matrix are along the diagonal, reflecting that the most likely rating for an issuer at the end of the annual period is the rating with which the issuer began the period, which is also shown

6 Throughout this report we compare regional statistics with global statistics which include the Asia-Pacific regions. 7 Ratings are typically withdrawn when all of an issuer’s rated debt matures, is called or converted, or is retired through some other orderly market function (e.g. M&A).




in Exhibit 6. For example, an issuer domiciled in the Asia-Pacific region who was rated Aaa at the beginning of the time period has an 81.5% historical probability of remaining Aaa one year later.

Alternatively, those elements off the diagonal reflect transitions to better (triangle below the diagonal) or worse (triangle above the diagonal) rating categories within one year. For example, a Aa-rated issuer in the Asia-Pacific region had a historical probability of 5.5% of being downgraded to an A rating within one year and a 1.4% historical probability of being upgraded to Aaa over the same period. The farther one moves from the diagonal, the smaller the migration rates, reflecting a relatively low historical probability of issuers moving across more than one rating category during the course of a year, a finding also reflected in Exhibit 6.

Exhibit 8: Annual Average Broad Letter Rating Transition Rates Rating from Rating to

Aaa Aa A Baa Ba B Caa-C Default WR

Asia-Pacific One-Year Average Rating Transition Rates, 1990 - 1H2007 Aaa 81.5% 13.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.6%

Aa 1.4% 85.9% 5.5% 0.1% 0.0% 0.0% 0.0% 0.0% 7.0%

A 0.0% 2.4% 85.1% 4.6% 2.2% 0.1% 0.0% 0.0% 5.5%

Baa 0.0% 0.1% 10.5% 75.0% 5.3% 1.4% 0.6% 0.2% 6.9%

Ba 0.0% 0.0% 0.0% 11.9% 71.6% 4.9% 2.7% 1.1% 7.7%

B 0.0% 0.0% 0.0% 0.0% 18.0% 56.5% 9.2% 8.2% 8.0%

Caa-C 0.0% 0.0% 0.0% 0.0% 0.0% 11.3% 58.6% 22.8% 7.3%

Global One-Year Average Rating Transition Rates, 1990 - 1H2007 Aaa 86.1% 9.2% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 4.2%

Aa 0.6% 87.4% 6.8% 0.2% 0.0% 0.0% 0.0% 0.0% 5.0%

A 0.0% 2.6% 87.3% 5.0% 0.4% 0.1% 0.0% 0.0% 4.5%

Baa 0.0% 0.2% 4.9% 84.5% 4.1% 0.8% 0.3% 0.2% 4.9%

Ba 0.0% 0.1% 0.5% 6.3% 73.2% 8.9% 0.8% 0.9% 9.3%

B 0.0% 0.0% 0.2% 0.3% 5.9% 72.9% 6.3% 4.2% 10.1%

Caa-C 0.0% 0.0% 0.0% 0.1% 0.6% 9.9% 59.7% 16.3% 13.4%

As shown in Exhibit 8, issuers in the Asia-Pacific region are slightly less stable than their global counterparts. For example, on average, 13% of Aaa-rated issuers in the Asia-Pacific region have been downgraded within one year, as opposed to 9.6% globally. Similar trends persist in other investment-grade rating categories. The Asia-Pacific region is less stable overall, meaning that it has historically had a larger percentage of downgrades and upgrades. For instance, the percentage of upgrades from the B-rating category to the Ba-rating category was 18% in the Asia-Pacific region, more than three times larger than the global historical average.

Defaults and Default Rates

In the period between 1990 and 1H2007, 196 issuers of corporate bonds and loans in the Asia-Pacific region defaulted on a total of $45.7 billion of bonds and loans. Of these, 36 were rated by Moody’s with a total default volume of $11.2 billion. Exhibit 9 shows a chronological summary of the default counts and volumes.




Exhibit 9: Chronological Summary of Defaults

Year

Rated Default Count

Unrated Default Count

Total Default Count

Rated Default Volume in MM

US$

Unrated Default Volume in MM

US$

Total Default Volume in MM

US$

1990 1 1 2 $200 $345 $545

1991 0 0 0 $0 $0 $0

1992 0 0 0 $0 $0 $0

1993 0 0 0 $0 $0 $0

1994 0 0 0 $0 $0 $0

1995 0 0 0 $0 $0 $0

1996 0 1 1 $0 $201 $201

1997 2 29 31 $614 $2,549 $3,162

1998 4 59 63 $1,045 $9,581 $10,626

1999 6 22 28 $1,124 $8,849 $9,973

2000 5 21 26 $1,048 $7,977 $9,025

2001 13 13 26 $4,749 $1,935 $6,684

2002 3 3 6 $2,010 $214 $2,224

2003 2 2 4 $374 $377 $751

2004 0 1 1 $0 $105 $105

2005 0 3 3 $0 $523 $523

2006 0 3 3 $0 $1,783 $1,783

1H2007 0 2 2 $0 $66 $66

Total 36 160 196 $11,164 $34,504 $45,668

Not surprisingly, given the Asian financial crisis of 1997-1998, the years 1997-1999 are the years with the largest number of defaults. Defaults have decreased dramatically since 2001. In fact, there has not been a rated default in the Asia-Pacific region since 2003, although there have been unrated defaults throughout this time period.

Exhibit 10 presents a geographical distribution of defaults for the period under analysis. The Appendix at the end of this report includes a list of rated and non-rated defaulters in the Asia-Pacific region as documented by Moody’s.




Exhibit 10: Defaults by Country

Country

Rated Default Count


Total Default Count

Rated Default Volume in MM

US$

Unrated Default Volume in MM

US$

Total Default Volume in MM

US$

Australia 10 4 14 $2,795 $710 $3,505

China 3 2 5 $677 $280 $957

Hong Kong 5 9 14 $1,103 $2,536 $3,640

India 0 3 3 $0 $510 $510

Indonesia 14 44 58 $4,913 $5,296 $10,209

Korea 1 40 41 $1,306 $16,113 $17,420

Malaysia 0 14 14 $0 $2,348 $2,348

Philippines 1 4 5 $258 $414 $672

Singapore 1 4 5 $51 $414 $465

Taiwan 0 4 4 $0 $421 $421

Thailand 1 32 33 $60 $5,462 $5,522

Total 36 160 196 $11,164 $34,504 $45,668

During the period from 1990 – 1H2007, Indonesia had the largest number of rated and unrated defaults, where a total of 58 issuers (14 rated and 44 unrated) defaulted on more than $10 billion worth of bonds and loans. Korea, on the other hand, had the largest default volume during the period, where a total of 41 issuers defaulted on more than $17 billion of debt. Most of these defaults occurred during the Asian financial crisis.

Exhibit 11 presents the broad industry distribution of defaults during our analysis period. Most of the defaults occurred in the broad category of industrial companies, followed by finance and then banking.

Exhibit 11: Defaults by Broad Industry

Industry

Rated Default Count


Total Default Count

Rated Default Volume

in MM US$

Unrated Default Volume

in MM US$

Total Default Volume

in MM US$

Banking 1 12 13 $120 $1,548 $1,669

Finance 0 19 19 $0 $1,397 $1,397

Industrial 31 122 153 $10,331 $25,128 $35,459

Other Non-Bank 0 1 1 $0 $5,829 $5,829

Public Utility 1 0 1 $154 $0 $154

Real Estate Finance 0 1 1 $0 $100 $100

Transportation 3 5 8 $559 $503 $1,061

Total 36 160 196 $11,164 $34,504 $45,668




Default Rates

Issuer-Weighted Annual Default Rates

Moody’s issuer-weighted default rates are fractions in which the numerator represents the number of issuers that defaulted in a particular time period and the denominator represents the number of issuers that could have defaulted during this period. In this study, the numerators are the number of issuers that defaulted on Moody’s-rated debt. The denominators are the number of issuers that potentially could have defaulted on Moody’s-rated debt, with an adjustment for issuers exiting the capital markets, either by withdrawal or default.8

Exhibit 12 presents average annual speculative-grade one-year default rates for Asia-Pacific issuers for 1990-1H2007.9 Between 1990 and 1996, there were no speculative-grade defaults in the Asia-Pacific region, and therefore the speculative-grade default rate is zero. The speculative-grade default rate peaked twice, once during the Asian financial crisis of 1997-98 and again in 2001. Since 2003, there have been no rated defaults of any grade, and therefore the speculative-grade default rate for issuers domiciled in the Asia-Pacific region is zero.

A seeming anomaly between Exhibits 9 and 12 should be clarified. According to Exhibit 9 (Chronological Summary of Defaults), the largest number of defaults occurred in 1998, but the speculative-grade default rate peaks in 2001. The reason for this difference is that the speculative-grade default rate is calculated using only Moody’s-rated issuers, while the default count in Exhibit 9 includes both rated and unrated issuers. In 2001, the number of rated defaults was 13, as opposed to 4 in 1998.

Exhibit 12: Annual Speculative-Grade Default Rates, 1990 - 1H2007

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Cohort Year

SG D

efau

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Global Asia-Pacific (excluding Japan)

Cumulative Default Rates

Investors are also interested in default rates for investment horizons longer than one year. Exhibit 13 presents multi-year cumulative default rates for both the Asia-Pacific and the global universe of rated issuers. Moody’s forms cohorts of all issuers holding a given estimated senior rating at the beginning of each month. The cohorts are dynamic as they change based on whether these issuers leave the cohort due to default, withdrawal, or rating change. The dynamic nature of cohorts allows the estimation of cumulative default risk over multi-year horizons. It also allows for the comparison and averaging of default rates over different

8 See Cantor and Hamilton (2006). 9 Default rates are calculated based on Moody’s-rated issuers that defaulted in a particular time period as numerator and total number of Moody’s rated issuers at the beginning of the cohort date adjusted for withdrawals and defaults. In the Asia-Pacific region, since the majority of the defaults have been unrated, corporate default rates that include rated and unrated debt may be materially different.




periods. By forming and tracking such cohorts of all Moody’s-rated issuers with debt outstanding as of the first of each month, we replicate the experience of a portfolio of both seasoned and new-issue bonds and loans.

To estimate the average risk of default for horizons longer than one year, we calculate the risk of default in each year since a cohort was formed. The issuer-weighted average of each cohort’s one-year default rate forms the average one-year default rate for any given year. These one-year default rates can be summed over any horizon length (in this study we go out to 5 years) and are known as cumulative issuer-weighted default rates. The Appendix at the end of the report describes the methodology for estimating cumulative default rates.

Exhibit 13: Issuer-Weighted Average Cumulative Default Rates,by Broad Letter Rating, Asia-Pacific vs. Global, 1990 – 1H2007

Horizon (years)

Broad rating 1 2 3 4 5

Asia - Pacific (1990-1H2007)

Aaa 0.0% 0.0% 0.0% 0.0% 0.0%

Aa 0.0% 0.0% 0.0% 0.0% 0.0%

A 0.0% 0.0% 0.0% 0.0% 0.0%

Baa 0.2% 0.6% 1.2% 2.2% 2.9%

Ba 1.2% 3.0% 5.0% 7.4% 10.0%

B 8.5% 16.2% 25.0% 34.4% 40.8%

Caa-C 23.5% 42.5% 59.1% 63.6% 63.6%

IG 0.1% 0.2% 0.3% 0.6% 0.7%

SG 5.6% 11.0% 16.4% 20.3% 23.1%

All-rated 1.2% 2.4% 3.6% 4.5% 5.2%

Global (1990 - 1H2007)

Aaa 0.0% 0.0% 0.0% 0.0% 0.0%

Aa 0.0% 0.0% 0.0% 0.0% 0.0%

A 0.0% 0.1% 0.1% 0.2% 0.3%

Baa 0.2% 0.5% 0.8% 1.3% 1.7%

Ba 0.9% 2.3% 4.1% 5.9% 7.6%

B 4.4% 9.9% 15.4% 20.2% 24.8%

Caa-C 17.3% 28.1% 37.3% 44.7% 50.6%

IG 0.1% 0.2% 0.3% 0.5% 0.7%

SG 4.6% 9.1% 13.3% 17.0% 20.2%

All-rated 1.6% 3.2% 4.6% 5.7% 6.7%

The overall default rates as indicated by All-rated in the exhibit show that, on average, Asia-Pacific issuers have relatively lower default rates over a one-to-five year horizon than their global counterparts. However, at all individual rating categories Baa and below, default rates in the Asia-Pacific region were moderately higher than their global counterparts, largely reflecting the impact of the defaults in the pulp and paper industries during 2001. 10 The rating distributions of these two groups differ significantly, with the Asia-Pacific region having a greater share of higher-rated corporate bond and loan issuers, both overall and within the

10 These defaulters included 8 rated issuers that were part of the Asia Pulp and Paper corporate family.




speculative-grade categories. As a result, when aggregating across all rated issuers, historical default rates are actually lower in the Asia-Pacific region than globally.

Regional Differences in Rating Transitions and Cumulative Default Rates

Until now, we have discussed the Asia-Pacific region as a single portfolio of issuers operating in similar capital markets. However, issuers in different countries in the region operate under different bankruptcy and regulatory regimes, commercial lending environments, and macro-economies. As such, investors may be interested in defaults and rating transitions at a more specific level. In this section, we create sub-samples based on a more “natural” pooling of issuers to account for differences in capital markets. Within the Asia-Pacific region, we focus on two distinct sub-regions:

1) Australia and New Zealand

2) Rest of Asia Pacific.11

Exhibit 14 shows the different rating transitions for these sub-regions.

Exhibit 14: Rating Transitions within the Asia-Pacific Region Rating from Rating to


Australia and New Zealand: One Year Average Rating Transitions, 1990 - 1H2007

Aaa 82.8% 12.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.7%

Aa 1.4% 87.1% 3.9% 0.1% 0.0% 0.0% 0.0% 0.0% 7.5%

A 0.0% 2.5% 87.3% 5.1% 0.4% 0.0% 0.0% 0.0% 4.7%

Baa 0.0% 0.3% 9.7% 81.6% 3.3% 0.5% 0.0% 0.0% 4.7%

Ba 0.0% 0.0% 0.0% 8.6% 69.9% 6.9% 0.7% 1.6% 12.2%

B 0.0% 0.0% 0.0% 0.0% 3.0% 61.3% 13.2% 9.4% 13.2%

Caa-C 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10.1% 89.9% 0.0%

Asia Pacific excluding Japan, Australia and New Zealand: One-Year Average Rating Transitions, 1990- 1H2007

Aaa 60.8% 19.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 19.6%

Aa 1.5% 79.4% 15.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.2%

A 0.0% 2.2% 82.9% 4.2% 4.2% 0.2% 0.0% 0.0% 6.4%

Baa 0.0% 0.0% 11.0% 71.0% 6.5% 2.0% 0.9% 0.3% 8.3%

Ba 0.0% 0.0% 0.0% 12.5% 71.9% 4.6% 3.1% 1.0% 6.9%

B 0.0% 0.0% 0.0% 0.0% 22.0% 55.3% 8.1% 7.9% 6.6%

Caa-C 0.0% 0.0% 0.0% 0.0% 0.0% 12.3% 62.6% 17.3% 7.9%

Exhibit 14 shows that investment-grade issuers in Australia and New Zealand are more stable than those in the rest of the Asia-Pacific region. However, speculative-grade issuers in Australia and New Zealand were less stable. There were very few Caa-C-rated issuers in Australia and New Zealand, and those specific issuers had a very high one-year default rate.

11 As mentioned in the introduction, we have eliminated Japan from our analysis because of its many differences from the rest of the region. For interested readers, we provide cumulative default rates and rating transitions for Japan, as well as for the Asia-Pacific region including Japan in Appendix D.




Exhibit 15 compares the cumulative default rates between Australia and New Zealand and the rest of the Asia-Pacific region. These default rates show that credit quality is very strong for Australia-New Zealand investment-grade issuers – there are no defaults within the 5-year horizon. However, the riskiest of the speculative-grade issuers (Caa-C) are risky indeed – there has been a 100% default rate by year 2. For B-rated issuers, there is almost a 100% default rate by year 5. However, the extremely small number of speculative-grade issuers in Australia and New Zealand is driving these anomalous results. In any given cohort, there were no more and often less than 2 issuers in the Caa-C category, and no more than 6 issuers in the single-B category. The rest of the Asia-Pacific region has 5-year cumulative default rates that are fairly similar to the complete Asia-Pacific region (see Exhibit 13).

Exhibit 15: Issuer-weighted Average Cumulative Default Rates, by Broad Letter Rating, by Region, 1990 – 1H2007

Horizon (years)


Australia - New Zealand

Aaa 0.0% 0.0% 0.0% 0.0% 0.0%

Aa 0.0% 0.0% 0.0% 0.0% 0.0%

A 0.0% 0.0% 0.0% 0.0% 0.0%

Baa 0.0% 0.0% 0.0% 0.0% 0.0%

Ba 1.7% 5.2% 10.8% 15.1% 23.8%

B 9.8% 31.1% 52.9% 72.8% 91.2%

Caa-C 89.9% 100.0% n.a. n.a. n.a.

IG 0.0% 0.0% 0.0% 0.0% 0.0%

SG 10.2% 20.6% 31.2% 39.9% 50.4%

All-rated 0.6% 1.2% 1.8% 2.3% 2.8%

Rest of Asia-Pacific (excl. Japan, Australia and New Zealand)

Aaa 0.0% 0.0% 0.0% 0.0% 0.0%

Aa 0.0% 0.0% 0.0% 0.0% 0.0%

A 0.0% 0.0% 0.0% 0.0% 0.0%

Baa 0.3% 0.9% 2.0% 3.5% 4.6%

Ba 1.1% 2.7% 4.1% 6.3% 8.0%

B 8.2% 12.2% 17.0% 23.0% 25.9%

Caa-C 17.9% 37.5% 55.6% 60.4% 60.4%

IG 0.1% 0.4% 0.8% 1.5% 1.9%

SG 4.9% 9.4% 13.9% 17.0% 18.6%

All-rated 1.8% 3.5% 5.4% 6.9% 7.8%




Moody’s Ratings as Predictors of Default

The default rate statistics presented above clearly demonstrate that Moody’s Asia-Pacific corporate bond and loan ratings are strongly correlated with subsequent default experience up to a 5-year horizon. There is a strong rank ordering of credit risk in default space – the lower the rating, the higher probability of default. We can also look at ratings prior to default. Credit deterioration is shown by rating downgrades up to the date of default. Exhibit 16 shows the average and median ratings for defaulted Asia-Pacific and global issuers, various months before default (t=0 is the default date). Exhibit 16 shows that the ratings prior to default of issuers in the Asia-Pacific region mirror those of their global counterparts. Both had a median rating at default of Caa2, and a median rating 3 years before default of B2.

Exhibit 16: Ratings Prior to Default, 1990 - 1H2007

048121620242832364044485256606468727680

Months Prior to Default

Asia Pacif ic Mean Asia Pacif ic MedianGlobal Mean Global MedianBa2

Ba2Ba3B1B2B3Caa1Caa2

The cumulative accuracy profile (CAP) shown in Exhibit 17 gives another perspective on the power of ratings in predicting default. A CAP curve is constructed by first sorting the Moody’s-rated universe of corporate bond and loan issuers from highest to lowest credit risk and then plotting the share of defaulters against the sorted universe. Exhibit 17 calculates the percentage of defaulters whose credit rating is equal to or lower than that rating. The further the curve bows to the northwest corner, the greater the fraction of all defaults that carry low ratings. Exhibit 17 shows that the curves for both Asia-Pacific and global issuers bow to the northwest corner, indicating that Moody’s ratings are powerful signals of default risk. The CAP curve for Asia-Pacific is very similar to the global CAP curve – 84% of Asia-Pacific defaulters had ratings of B1 or below within one-year of default, compared with approximately 90% globally. Exhibit 18 calculates the CAP curve by risk decile. Again, Moody’s ratings prove to be important signals of default risk. When sorted by risk decile, the CAP curves are similar but the Asia-Pacific region outperforms the global sample, with about 85% of defaults captured in the first decile compared with approximately 65% for global issuers over the same one-year horizon. This follows from the fact that Asia-Pacific defaulters had slightly lower average ratings at default as well as from the fact that non-defaulting Asia-Pacific issuers have been rated higher on average than their global counterparts.




Exhibit 17: Cumulative Accuracy Profile, Asia-Pacific versus Global Issuers, 1990 - 1H2007

0%

20%

40%

60%

80%

100%

C CaCaa

3Caa

2Caa

1 B3 B2 B1Ba3 Ba2 Ba1

Baa3

Baa2

Baa1 A3 A2 A1

Aa3 Aa2 Aa1 Aaa

Cum

ulat

ive

Prop

ortio

n of

Def

aulte

rs

Asia Pacif ic Global

Exhibit 18: Cumulative Accuracy Profile, Asia-Pacific versus Global Issuers, 1990 -1H2007, by Risk Decile

0%

20%

40%

60%

80%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Cumulative Proportion of Issuers, by Risk Decile

Cum

ulat

ive

Pro

porti

on o

f D

efau

lters

Asia Pacific Global

Defaulted Bond Recovery Rates

Moody’s ratings are statements about the probability of default and expected loss severity rates (i.e., one minus the expected recovery rate) in the event of default. We estimate recovery rates using 30-day post default bid prices on defaulted bonds and loans, though no trades might have taken place at some of these prices.12 Exhibit 19 presents the average recovery rates with one caveat that the number of observations is quite small compared to the global universe. A list of recovery prices for defaulted bonds and loans in the Asia-Pacific region is included in the Appendix.

12 See the Appendix for further discussion about these prices.




Exhibit 19: Average Issuer-Weighted Recovery Rates by Instrument, 1990 - 1H2007 Instrument Asia-Pacific Global

Average Recovery

Rate Number of issuer/ seniority type obs.

Average Recovery Rate

Number of issuer/ seniority type obs.

Senior Secured 35.61% 13 62.07% 370

Senior Unsecured 31.62% 15 36.27% 542

All Subordinated 59.33% 4 29.30% 525

All 36.70% 32 40.37% 1437

The number of observations is too small to make a statistically significant comparison, but there is a monotonic relationship between instrument and recovery rate in the global sample, and this follows for Senior Secured and Senior Unsecured in the Asia-Pacific sample. The higher recovery rate shown for Subordinated instruments is based on a very small sample size.

Exhibit 20 shows the recovery rates by broad industry classification.

Exhibit 20: Average Issuer-Weighted Recovery Rates by Broad Industry, 1990 - 1H2007 Instrument Asia-Pacific Global

Average Recovery

Rate Number of issuer/

industry obs. Average Recovery

Rate Number of issuer/

industry obs.

Banking 37.00% 1 29.83% 10

Finance n/a 0 46.62% 24

Industrial 35.21% 26 39.20% 989

Other Non-Bank 76.00% 1 33.61% 10

Public Utility 45.00% 1 51.58% 38

Transportation 32.00% 2 36.38% 41

Credit Loss Rates

In previous sections, we have examined the two main components of credit loss, the probability of default and the severity of loss given default (1-recovery rate). In this section, we bring these two components together to determine credit loss rates. Expected credit losses are defined as follows:

Credit Loss Rate = (Default Frequency) *(1-Recovery Rate)




Exhibit 21: Annual Credit Loss Rates

0%2%4%6%8%

10%12%14%16%

Aaa Aa A Baa Ba B Caa-C

Asia Pacif ic Global

Asia-Pacific loss rates are very similar to the global sample for investment-grade issuers, as well as for Ba-rated issuers. However, in the lower part of the speculative-grade range, issuers in the Asia-Pacific region excluding Japan have higher credit loss rates than the complete global sample.

The highest-risk portfolios (with an average rating of Caa-C) have the highest credit losses and the lowest-risk portfolios (rated Aaa) have the lowest credit losses. The amount of credit loss increases exponentially as we go down the rating scale.




Appendix A

Methodology and Data Sources

Methodology changes in this year’s report

The historical data contained in this report include a number of revisions relative to previous years’ publications. Moody’s occasionally discovers historical defaults, leading to minor revisions of the historical data. However, this year’s report includes two methodological changes that result in more substantial revisions to certain historical data. As always, the data contained in the most recently published Moody’s default studies supersede the data published in previous reports.

Change in Universe of Study

As an assessment of the performance of Moody’s long-term corporate ratings, it is important that Moody’s default studies include ratings for all debt classes and issuers that share the same intended meaning (and for which data is available). This year’s reports include changes to the universe of study whose net effect is to increase the total number of issuers (and observed defaults) in the universe of study. For the first time, this year’s reports include corporate bank loan issuers in addition to bond issuers.

Rating Migration Calculations

A rating migration matrix completely summarizes changes in credit ratings over a given time horizon. The cells of the matrix are discrete-time estimates of rating migration probabilities. They show rate of rating change measured at two points in time; e.g. the start and end of one year. When calculating credit rating migration rates, Moody's treats rating changes, rating withdrawals, and defaults as mutually exclusive states. For example, an issuer that is downgraded on the day of default is counted only as a default, not a downgrade or a downgrade and default. Similarly, an issuer whose rating is withdrawn on the day of default is counted as a default, not a withdrawal.

The probability that an issuer’s rating i held on cohort date y )(Tp yij will transition to rating j (which includes

default and withdrawal) over a time horizon T is calculated as:

)0()(

)( yi

yijy

ij nTn

Tp = ,

where niy(0) equals the number of issuers holding rating i on cohort date y and nij

y(T) is the number of issuers that held rating i at the cohort date y but transitioned to rating j by the end of the period T.

The weighted average rating migration rate for all cohorts y in the historical data set Y is calculated as:

∑∑

∈

∈=

Yy

yi

Yy

yij

ij n

TnTp

)0(

)()(




Default Rate Calculation

Moody’s method for calculating cumulative default rates is a discrete-time approximation of the nonparametric continuous-time hazard rate approach.13 Cumulative default rates are calculated from marginal default rates, which represent the probability that an issuer that has survived in the sample through a particular date will default over the next time interval (typically, one year) following that date.

The marginal default rate for issuers holding rating i on cohort date y is the ratio of the number of defaulting issuers in period t divided by the number of issuers exposed to the risk of default in period t:

)()()()0(

)()(

21

1

1

1

1twjwjxn

txtd

yi

t

j

yi

t

j

yi

yi

yiy

i

−−−=

∑∑−

=

−

=

where niy(0) is equal to the number of issuers holding rating i on cohort date y, ∑

−

=

1

1)(

t

j

yi jx denotes the number

of issuers rated i on cohort date y that defaulted in the periods prior to the current time period, ∑−

=

1

1)(

t

j

yi jw is

equal to the number of issuers rated i on cohort date y that had their ratings withdrawn in the periods prior to the current one, and wi

y(t) is the number of issuers rated i on cohort date y that had their ratings withdrawn in period t.

The denominator of the marginal default rate adjusts for defaults and rating withdrawals that occur in periods prior to period t, as well as makes a small adjustment for withdrawals that occur in time period t. Withdrawn ratings that occur within the time period t are treated as if they were censored at the midpoint of the interval, that is, treated like they were at risk for half the time.

Cumulative default rates for investment horizons of length T, D(T), are built up from the marginal default rates:

∏=

−−=T

t

yi

yi tdTD

1

)](1[1)(

Or, expanding the above equation (and dropping indices for brevity):

))](1[)((...))]2(1))(1(1)[(3()]1(1)[2()1()(1

1∏−

=

−++−−+−+=T

t

tdTdddddddTD

In the first time period, a fraction of the credit exposures in the cohort either defaults or survives. The credit exposures that survive period one may then go on to default or survive in period two; those that survive period two may go on to default or survive in period three, etc. Because the time periods are non-overlapping and the probability of default in each period is assumed to be independent, the T-period cumulative default rate is defined as one minus the product of the T marginal survival rates.

13 See Hamilton, D. and R. Cantor (2006) “Measuring Corporate Default Rates,” Moody’s Global Credit Research, November.




The calculation of the average cumulative default rate for rating class i, )(TDi , is derived from the weighted

average marginal default rates, )(tdi , calculated from all the available cohort marginal default rates in the

historical data set Y:

∏=

−−=T

tii tdTD

1

)](1[1)(

where

∑∑

∈

∈=

Yy

yi

Yy

yi

i tn

txtd

)(

)()(

The default rates calculated in multi-year rating migration matrices are not comparable to those calculated using Moody’s discrete-time hazard rate method described above. Rating migration matrices account for rating withdrawals separately (in the column labeled WR) while the hazard rate method incrementally adjusts the denominator of the marginal default rate to remove rating withdrawals. Occasionally, withdrawal-adjusted rating migration matrices are calculated as follows:

))(1()(

)( *

TpTp

Tp yiw

yijy

ij −=

Using this method, all issuers whose ratings are withdrawn are removed. In effect, data for issuers whose ratings are withdrawn is completely discarded. This method generally yields higher default rate estimates than the hazard rate method. Hence, Moody’s hazard rate-derived default rate estimates lay between unadjusted migration matrix-derived default rates and withdrawal-adjusted migration matrix-derived default rates.

Recovery Rate Calculations

Moody's estimates defaulted debt recovery rates using market bid prices observed roughly 30 days after the date of default. Recovery rates are measured as the ratio of price to par value. Using post-default prices to measure recovery (or its complement, loss severity) parallels common practice in the credit default swaps market. Moreover, recovery rates measured in this way are most relevant for cash bond investors who liquidate their holdings shortly after default as often 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 estimate of discounted expected ultimate recovery rates.

The alternative approach of directly measuring ultimate realized recoveries presents a number of estimation challenges, including the appropriate discount rate to apply to cash-flows and valuing the assets used to pay creditor claims, which may include illiquid new securities (e.g., equity and derivative instruments) as well as physical assets.

For the purposes of measuring expected credit loss rates, we rely on issuer-weighted mean recovery rates. An issuer-weighted mean recovery rate is derived by estimating the average recovery rates for each issuer, and then averaging across issuers. They are useful for predicting recovery rates for portfolios that are well diversified across issuers.




Credit Loss Rate Calculations

Moody’s credit ratings are opinions of relative expected credit losses. Credit losses are therefore a function of both probability of default (PD) as well as the severity of default (LGD). The expected credit loss rate for rating category i is calculated as the product of the T-horizon average issuer-weighted default rate and the T-horizon average issuer-weighted senior unsecured loss severity rate (where r(T) is the average senior unsecured recovery rate at horizon T):

))(1()()( TrTDTl iii −×=

CAP Curve and Accuracy Ratio

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.14 The CAP plot graphs the cumulative proportion of defaults from a portfolio (the y-axis) against the proportion of issuers exposed to the risk of default (the x-axis), sorted by riskiness. A rating system that randomly identified defaults from non-defaults would plot a line directly on the 45-degree line. The more powerful the discriminatory power of the rating system, the further the CAP curve bows toward the top left corner.

CAP curves are powerful tools for visualizing rating performance, but can be unwieldy from making comparisons over many time periods. A summary measure of rating accuracy that can be derived from the CAP curve is the accuracy ratio (AR). The accuracy ratio is the ratio of the area between the CAP curve and the 45-degree line to the total area above the 45-degree line. A rating system that perfectly differentiates defaults from non-defaults would score an AR of 100%, while a rating system that had zero predictive ability would score 50%.15

Data Sources

Moody’s bases the results of this study on its proprietary database of ratings and defaults for corporate bond and loan issuers. Municipal and sub-sovereign debt issuers, structured finance securities, private placements, and issuers with only short-term debt ratings are excluded unless otherwise noted. In total, Moody's data covers the credit experiences of over 18,000 corporate issuers that sold long-term public debt at some time between 1920 and 2006. As of January 1, 2006 over 5,700 corporate issuers held a Moody’s long-term bond, loan, or corporate family rating.

Moody’s database of corporate defaults covers over 3,600 long-term bond defaults by issuers both rated and non-rated 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 consists includes post-default prices for nearly 2,500 defaulted instruments issued by over 1,200 defaulting corporations. Moody's makes the 1970-2006 credit rating, default, and recovery rate data used in this study available through its Default Risk Service (DRS) database.

14 For a more detailed discussion of rating accuracy metrics see Cantor, R. and C. Mann (2003) "Measuring the Performance of Corporate Bond Ratings," Moody’s Global Credit Research, April. 15 The accuracy ratio possesses the same information about discriminatory power as the area under the receiver-operator characteristics curve (AROC) and the Gini coefficient. Each measure quantifies rank rather than scale.




Appendix B: Chronological List of Asia-Pacific (excl. Japan) Corporate Defaulters, 1990 – 1H2007

Default Year Company Defaulted Amount Rated Issuer?

1990 Fairfax (John) Group Pty, Ltd. $345 0

1990 Linter Textile Corporation $200 1

1996 Amcol Holdings Limited $201 0

1997 Alphatec Electronics Public Company Limited $34 0

1997 Asia Motors Co., Ltd. $336 0

1997 Australis Holdings Pty Limited $268 1

1997 Australis Media Limited $346 1

1997 Bangkok Land (Cayman Islands) Limited $99 0

1997 Burns, Philp & Company Limited $0 0

1997 CMIC Finance & Securities PCL $13 0

1997 Finance One PCL $186 0

1997 Hanbo Steel Industry Co. $45 0

1997 Hyundai Metal Co. $15 0

1997 Jinro (H.K.) International Ltd. $80 0

1997 Jinro Limited $108 0

1997 Juldis Develop Public Company Limited $60 0

1997 Kia Motors Corp. $204 0

1997 Kia Precision Works Co., Ltd. $18 0

1997 Kia Steel Co., Ltd. $26 0

1997 Kisan Corporation $280 0

1997 Mando Machinery Corporation $26 0

1997 Multi-Credit Corp. of Thailand PCL $65 0

1997 Newmax International (H.K.) Co., Ltd. $64 0

1997 NTS Steel Group PCL $100 0

1997 Property Perfect Public Company Limited $42 0

1997 PT Putra Surya Multidana Tbk. $26 0

1997 Sahaviriya City PCL $30 0

1997 Sammi Steel Company Limited $173 0

1997 Somprasong Land Public Company Limited $80 0

1997 Tae Il Media (H.K.) Co., Ltd. $82 0

1997 Tae Il Media Co., Ltd. $11 0

1997 TPI Polene Public Company Limited $240 0

1997 Wall Street Finance & Securities PCL $55 0

1997 Wattachak Public Company Limited $51 0

1998 Aokam Perdana Berhad $124 0

1998 Arab Malaysian Corporation Berhad $99 0

1998 Astra Overseas Finance B.V. $200 0

1998 Bakrie Finance Corporation Tbk. $15 0

1998 Bakrie Indonesia B.V. $185 0





1998 Bakrie International Finance Company B.V. $469 0

1998 Bangkok Bank of Commerce Pcl $62 0

1998 BIN Finance Company B.V. $100 0

1998 Cibinong International Finance Company B.V. $150 0

1998 Ciputra Development International Finance B.V. $100 0

1998 Citra Marga Finance B.V. $300 0

1998 CP Pokphand (Finance) Co., Ltd. $135 0

1998 CP Pokphand Co. Ltd. $243 0

1998 Dhana Siam Finance Public Company Limited $65 0

1998 Dharmala Intiutama International B.V. $316 0

1998 DSS Overseas International B.V. $100 0

1998 Duta Anggada International B.V. $100 0

1998 FSW International Finance Company B.V. $135 1

1998 Hemaraj Land and Development Public Company Limited $54 0

1998 Huitong International Trust and Investment Corp. $7 0

1998 Korea Tungsten Co., Ltd. $136 0

1998 Kwang Myung Electric Engineering Co., Ltd. $8 0

1998 Malaysian General Investment Corporation Bhd. $17 0

1998 Midopa Co., Ltd. $23 0

1998 Mulia Industrindo Finance B.V. $225 0

1998 Mulialand Finance B.V. $200 0

1998 Ometraco Nederland B.V. $80 0

1998 Pembinaan YCS Bhd. $93 0

1998 Peregrine Investments Holdings Ltd. $272 0

1998 Philippine Airlines Inc. $200 0

1998 Polysindo International Finance Company B.V. $683 1

1998 Polytama International Finance B.V. $200 1

1998 Primetown Property Group Inc. $41 0

1998 PT Astra International Tbk. $347 0

1998 PT Bahana Pembinaan Usaha $325 0

1998 PT Bakrie Investindo $54 0

1998 PT Bank Modern Tbk. $13 0

1998 PT Cakrawala Andalas Televesi $70 0

1998 PT Ciputra Development $14 0

1998 PT Ciputra Surya Tbk. $35 0

1998 PT Dharmala Sakti Sejahtera $6 0

1998 PT Duta Anggada Realty Tbk. $14 0

1998 PT Jakarta International Hotels & Development Tbk. $71 0

1998 PT Muliaglass $11 0

1998 PT Muliakeramik Indahraya Tbk. $11 0

1998 PT Mulialand Tbk. $35 0

1998 PT Pakuwon Jati Tbk. $34 0





1998 PT Polysindo Eka Perkasa $27 1

1998 PT Semen Cibinong Tbk. $170 0

1998 PT Suryamas Dutamakmur Tbk. $40 0

1998 Renong Berhad $664 0

1998 Robinson Department Store Plc $291 0

1998 Sahaviriya OA Public Company Limited $0 0

1998 Sahaviriya Steel Industries Plc $110 0

1998 Shinwon Industries Co., Ltd. $10 0

1998 Taiping Consolidated Berhad $33 0

1998 Thai Modern Plastic Industry PCL $15 0

1998 Thai Oil Company Limited $1,766 0

1998 Thai Petrochemical Industry Public Company Limited $590 0

1998 TIME Engineering Berhad $250 0

1998 United Communication Industry Public Company Limited $332 0

1998 United Engineers (Malaysia) Berhad $50 0

1998 VDH Holland B.V. $100 0

1999 Cathay International Limited $350 1

1999 China-Singapore Suzhou Industrial Park Development Co., Limited

$100 0

1999 Chuntex Electronics Corporation Ltd. $8 0

1999 Daewoo Corporation $5,829 0

1999 Daewoo Heavy Industries Ltd. $151 0

1999 Essar Steel Limited $290 0

1999 Expressway Lingkaran Tengah Sdn. Bhd. $107 0

1999 Hanmi Leasing & Finance (HK) Ltd. $45 0

1999 Indorayon International Finance B.V. $150 1

1999 International Engineering Public Company Limited $7 0

1999 Linkedua (Malaysia) Bhd. $144 0

1999 Nam Kwong (Group) Company, Ltd. $86 0

1999 Orion Electric Company Ltd. $258 0

1999 P.T. Inti Indorayon Utama $170 1

1999 Pacific Can Investment Holdings Ltd. $12 0

1999 Precious Shipping Public Company Ltd. $31 0

1999 PT Bank Mashill Utama Tbk. $9 0

1999 PT Bank Papan Sejahtera $0 0

1999 PT Hanjaya Mandala Sampoerna $140 0

1999 Samsung Motor, Inc. $1,264 0

1999 Shin Yen Textile Company, Ltd. $1 0

1999 Singer Company N.V. $150 1

1999 Sri Thai Superware Public Company Limited $80 0

1999 Technology Resources Industries Bhd. $175 0

1999 TelecomAsia Corporation Pcl $90 0

1999 Traffic Stream (BVI) Infrastructure Company, Ltd. $119 1





1999 Tri Polyta Finance B.V. $185 1

1999 Uniwide Holdings, Inc. $23 0

2000 Bangkok Expressway Co Ltd. $587 0

2000 Bulong Operations Pty Ltd. $185 1

2000 Central Banking Corporation $181 0

2000 Daewoo Motor Company Ltd. $2,564 0

2000 DGS International Finance Company B.V. $225 1

2000 Dong Ah Construction Industrial Co. Ltd. $322 0

2000 Greater Beijing First Expressways Limited $288 1

2000 H&S Investment Bank $118 0

2000 Hainan International Trust & Investment Corporation $273 0

2000 Hyundai Engineering & Construction Co. Ltd. $2,044 0

2000 Italian-Thai Development Plc. $81 0

2000 Kookmin Leasing Company Ltd. $40 0

2000 Korea Express Co. Ltd. $47 0

2000 Korea Merchant Banking Corporation $525 0

2000 Land & General Berhad $57 0

2000 Nakornthai Strip Mill Public Company Limited $150 0

2000 Nara Investment Banking Corporation $47 0

2000 Panda Global Energy Company $154 1

2000 Panjapol Pulp & Paper Industry Company Ltd. $68 0

2000 Saehan Industries, Inc. $298 0

2000 Saehan Media Corporation $177 0

2000 Samsung Commercial Vehicle Company $261 0

2000 Sewoo Polymer Company $16 0

2000 Southern Petrochemicals Industries Corporation Ltd. $120 0

2000 Yeungnam Merchant Banking Corporation $4 0

2000 Zhu Hai Highway Company Limited $196 1

2001 Advance Agro Public Company Limited $60 1

2001 APP China Group Limited $403 1

2001 APP Global Finance (III) Cayman Limited $638 1

2001 APP Global Finance Limited $51 1

2001 APP International Finance Company B.V. $464 0

2001 Barito Pacific Timber (P.T.) $42 0

2001 Bayan Telecommunications, Inc. $258 1

2001 Centaur Mining & Exploration Limited $225 1

2001 Fujian International Trust & Investment Corporation $120 1

2001 Harris Scarfe Holdings Limited $7 0

2001 IFCI Limited $100 0

2001 Indah Kiat Finance Mauritius Limited $600 1

2001 Indah Kiat International Finance Company B.V. $350 1

2001 Indah Kiat Pulp & Paper Corporation (P.T.) $82 0





2001 Korea Industrial Development Company Limited $150 0

2001 Lontar Papyrus Pulp & Paper Industry (P.T.) $286 0

2001 Pabrik Kertas Tjiwi Kimia (P.T.) $19 0

2001 Pasminco Limited $358 0

2001 Pindo Deli Finance Mauritius Limited $750 1

2001 Pindo Deli Pulp and Paper Mills (P.T.) $19 0

2001 Pratama Datakom Asia B.V. $260 0

2001 Sinar Mas Multifinance (P.T.) $48 0

2001 Sunway Holdings, Inc. Bhd $100 0

2001 Tjiwi Kimia Finance Mauritius Limited $600 1

2001 Tjiwi Kimia International Finance Company BV $200 1

2001 United Australia/Pacific, Inc. $493 1

2002 Benpres Holdings Corp. $150 0

2002 Citra Marga Finance B.V. $30 0

2002 Glencore Nickel Pty. Limited $300 1

2002 Hynix Semiconductor, Inc. $1,306 1

2002 Medison Company Limited $34 0

2002 Murrin Murrin Holdings Pty Ltd. $404 1

2003 Airtrain Citylink Limited $74 1

2003 Mosel Vitelic $308 0

2003 Newmont Yandel Operations Limited $300 1

2003 SK Global $69 0

2004 Procomp Informatics Co., Ltd. $105 0

2005 Garuda Indonesia $82 0

2005 Megasteel Harta Sdn Bhd $435 0

2005 Trigem Computer Inc. $6 0

2006 BOE Hydis Technology Co. $209 0

2006 LG Philips Displays Holdings BV $1,350 0

2006 Ocean Grand Holdings Limited $224 0

2007 Datamat Public Company Limited $28 0

2007 Shinil Housing Co $38 0




Appendix C: List of Recovery Prices in the Asia-Pacific Region, 1990 – 1H2007

Default Year Company Recovery Price Instrument

1990 Fairfax (John) Group Pty, Ltd. 21.50 SUB

1990 Fairfax (John) Group Pty, Ltd. 21.50 SUB

1990 Linter Textile Corporation 89.30 SUB

1997 Australis Holdings Pty Limited 46.00 Sr. Secured

1997 Australis Media Limited 30.00 Sr. Unsecured

1997 Burns, Philp & Company Limited 89.00 Sr. Unsecured

1997 Hanbo Steel Industry Co. 102.50 SUB

1998 FSW International Finance Company B.V. 20.00 Sr. Secured

1998 Polysindo International Finance Company B.V. 27.00 Sr. Secured



1998 Polytama International Finance B.V. 28.00 Sr. Secured

1999 Cathay International Limited 43.13 Sr. Unsecured

1999 Daewoo Corporation 84.50 Sr. Unsecured




1999 P.T. Inti Indorayon Utama 15.00 Sr. Unsecured

1999 Singer Company N.V. 17.50 Sr. Unsecured

1999 Tri Polyta Finance B.V. 32.50 Sr. Secured

2000 Greater Beijing First Expressways Limited 28.00 Sr. Unsecured

2000 Greater Beijing First Expressways Limited 26.00 Sr. Unsecured

2000 Panda Global Energy Company 45.00 Sr. Secured

2000 Zhu Hai Highway Company Limited 24.00 SUB

2000 Zhu Hai Highway Company Limited 50.00 Sr. Secured

2001 APP China Group Limited 12.50 Sr. Unsecured

2001 APP International Finance Company B.V. 20.00 Sr. Secured

2001 Centaur Mining & Exploration Limited 19.00 Sr. Secured

2001 Fujian International Trust & Investment Corporation 37.00 Sr. Unsecured

2001 Indah Kiat Finance Mauritius Limited 20.00 Sr. Unsecured

2001 Indah Kiat International Finance Company B.V. 28.00 Sr. Secured

2001 Indah Kiat International Finance Company B.V. 27.00 Sr. Secured

2001 Pindo Deli Finance Mauritius Limited 15.00 Sr. Unsecured



2001 Tjiwi Kimia Finance Mauritius Limited 24.00 Sr. Unsecured

2001 Tjiwi Kimia International Finance Company BV 14.00 Sr. Unsecured

2001 United Australia/Pacific, Inc. 4.13 Sr. Unsecured

2001 United Australia/Pacific, Inc. 4.13 Sr. Unsecured




Default Year Company Recovery Price Instrument

2002 Hynix Semiconductor, Inc. 66.04 Sr. Secured

2002 Hynix Semiconductor, Inc. 80.40 Sr. Secured

2002 Murrin Murrin Holdings Pty Ltd. 28.13 Sr. Secured

2003 Newmont Yandel Operations Limited 50.00 Sr. Unsecured

2006 LG Philips Displays Holdings BV 47.25 Sr. Secured




Appendix D: Statistics for Asia Pacific Including Japan

Asia-Pacific (including Japan) One-Year Average Rating Transition Rates, 1990 - 1H2007 Rating from Rating to


Aaa 79.7% 14.9% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 5.3%

Aa 1.0% 85.5% 8.0% 0.1% 0.0% 0.0% 0.0% 0.0% 5.4%

A 0.0% 1.7% 86.5% 5.2% 1.2% 0.0% 0.0% 0.0% 5.3%

Baa 0.0% 0.0% 6.8% 83.1% 3.6% 0.7% 0.3% 0.1% 5.3%

Ba 0.0% 0.0% 0.0% 9.7% 76.4% 5.1% 1.4% 0.7% 6.7%

B 0.0% 0.0% 0.0% 0.0% 16.4% 64.1% 5.6% 4.7% 9.2%

Caa-C 0.0% 0.0% 0.0% 0.0% 0.3% 10.9% 59.7% 20.1% 9.0%

Average Issuer-Weighted Cumulative Default Rates, Asia-Pacific Region (including Japan) (1990 - 1H2007)

Horizon (years)


Aaa 0.0% 0.0% 0.0% 0.0% 0.0%

Aa 0.0% 0.0% 0.0% 0.0% 0.0%

A 0.0% 0.0% 0.0% 0.0% 0.0%

Baa 0.1% 0.2% 0.4% 0.7% 0.9%

Ba 0.7% 1.9% 3.0% 4.4% 5.8%

B 4.9% 9.0% 13.5% 18.2% 21.5%

Caa-C 20.9% 38.2% 53.7% 58.1% 58.1%

IG 0.0% 0.1% 0.1% 0.2% 0.3%

SG 3.1% 6.0% 8.8% 10.9% 12.4%

All-rated 0.6% 1.2% 1.7% 2.2% 2.5%




Japan: One-Year Average Rating Transitions, 1990 - 1H2007 Rating from Rating to


Aaa 76.2% 18.6% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 4.9%

Aa 0.4% 84.9% 11.5% 0.1% 0.0% 0.0% 0.0% 0.0% 3.1%

A 0.1% 1.1% 87.8% 5.8% 0.2% 0.0% 0.0% 0.0% 5.0%

Baa 0.0% 0.0% 4.8% 87.7% 2.7% 0.3% 0.1% 0.0% 4.4%

Ba 0.0% 0.0% 0.0% 7.7% 80.6% 5.2% 0.2% 0.4% 5.9%

B 0.0% 0.0% 0.0% 0.0% 14.5% 73.5% 1.1% 0.3% 10.7%

Caa-C 0.0% 0.0% 0.0% 0.0% 2.5% 7.4% 68.0% 0.0% 22.1%

Issuer-Weighted Average Cumulative Default Rates, Japan (1990-1H2007)

Horizon (years)


Aaa 0.0% 0.0% 0.0% 0.0% 0.0%

Aa 0.0% 0.0% 0.0% 0.0% 0.0%

A 0.0% 0.0% 0.0% 0.0% 0.0%

Baa 0.0% 0.0% 0.0% 0.0% 0.0%

Ba 0.4% 0.9% 1.4% 2.0% 2.6%

B 0.3% 0.3% 0.3% 0.3% 0.3%

Caa-C 0.0% 0.0% 0.0% 0.0% 0.0%

IG 0.0% 0.0% 0.0% 0.0% 0.0%

SG 0.4% 0.7% 1.2% 1.7% 2.2%

All-rated 0.1% 0.1% 0.2% 0.3% 0.4%




Moody’s Related Research

Special Comments: Measuring The Performance Of Corporate Bond Ratings, April 2003 (77916)

Measuring Corporate Default Rates, November 2006 (100779)

Recovery Rates on Defaulted Corporate Bonds and Preferred Stocks, 1982-2003, December 2003 (80272)

Default and Recovery Rates of Asia-Pacific Corporate Bond Issuers, 1990-2003, August 2004 (87657)

Special Report: Moody’s Senior Ratings Algorithm & Estimated Senior Ratings, September 2005 (94351)

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