medium · Corporate Credit Analysis ratings
A corporate issuer has a BB+ rating but its bonds trade at a spread implying a 30% five-year cumulative PD.
If the historical BB five-year PD is 9%, what is the most likely explanation for this discrepancy according to the risk-neutral pricing framework?
- The bond's high liquidity in the market suppresses its trading spread.
- The company's expected recovery rate in default is higher than the BB average.
- Rating agencies have simply failed to downgrade a visibly deteriorating credit.
- The market spread reflects a risk-neutral PD that includes a risk premium.
Sign up free to see the explanation and track your rank →
More Corporate Credit Analysis ratings practice
- According to standard rating agency thresholds for a diversified industrial, which of the
- Based on standard notching rules, what is the likely rating of this specific bond?
- Falcon Aviation has been assigned a credit rating of BBB-. Based on standard market conven
- According to standard notching conventions, what is the rating of the TLB?
- What is the most likely rating cap for Titan's US-dollar denominated bonds?
- If the agency identifies that a sovereign default in its home country would trigger a 'Tra
- NorthStar Industries has a B-rated Issuer Credit Rating (ICR… — What is the likely rating
- Which statement best describes the expected shape of their cumulative PD curves over a 10-