Corporate Default and Ratings Performance Study: Definition of Default

Consistent with other international studies on corporates’ ratings performance, RAM Ratings’ study focuses on the historical behaviour of the issuer’s corporate credit rating, and is independent of the number and size of rated debt papers issued. The corporate credit rating is RAM Ratings' current opinion on the overall capacity of an entity to meet its financial obligations. The opinion is not specific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation.

For our purposes of constructing RAM Ratings' annual corporate default study and ratings performance review, we have defined an event of default to include the following:

1. A missed interest and/or principal payment, which is not remedied within the grace period;
2. The legal insolvency or bankruptcy of the issuer;
3. Failure to honour the corporate-guarantee obligations provided to subsidiaries;
4. A distressed exchange in which the bondholders are offered a substitute instrument with inferior terms (e.g. extended maturities, lower coupons or diminished security packages).

Structured Finance Ratings Default and Annual Migration Study: Definition of Default

RAM Ratings’ annual migration and default study on structured finance ratings tracks the individual tranche ratings (defined as a class of pari passu-ranking securities within the same rating category) and are used as the underlying unit of study when reviewing the ratings performance of structured issues. An Issue Rating is RAM Ratings' current opinion on the creditworthiness of a particular debt issue. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debt issue on a full and timely basis, taking into account its expressed terms and conditions.

For our purposes of constructing RAM Ratings' annual structured finance default study and ratings performance review, a default event and material impairment on structured securities is defined as any of the following:

1. Any principal shortfall or principal write-down suffered and not reversed by the legal final maturity, as promised;
2. A missed (promised) payment on interest obligations that do not have any deferrable or curable feature;
3. Sustained periods of interest shortfalls despite the presence of deferrable and curable features, which are deemed to be unremedied and unrecoverable;
4. The filing of bankruptcy or insolvency, receivership, liquidation, winding up or cessation of the issuer's business;
5. A distressed exchange where the bondholders are offered a substitute instrument with structurally or economically inferior terms (e.g. significantly extended maturities, lower coupons, further subordination in ranking or reduction in structural protection through the removal of termination events or protective triggers).

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