New Model Estimates Default Risk for Non-Rated Companies, Improving Financial Decisions.
The article suggests a model called Financial Ratios Scoring (FRS) to estimate the Probability of Default (PD) for non-rated companies when market or historical data is lacking. FRS uses key financial ratios to give a "shadow rating" to a company, placing it within a sector distribution based on companies with official credit ratings. The model was tested by comparing its ratings with official ones, showing positive results in estimating PD for non-rated companies.