[Verse 1] Companies borrow money, but sometimes they can't pay Default probability tells us who might fall away Loss given default measures what we'll lose that day Recovery rates reveal what comes back our way Expected loss combines these three in perfect display [Chorus] Credit analysis, decode the risk inside PD times LGD times exposure as your guide Investment grade or junk, the ratings will decide Moody's, S&P, and Fitch will be your ride Migration up or down, the credit tides collide [Verse 2] Triple-A to double-A, investment grade so strong Single-A and triple-B still singing the right song But double-B and lower, that's where risks belong High yield territory where the spreads grow long Rating agencies watch as companies move along [Chorus] Credit analysis, decode the risk inside PD times LGD times exposure as your guide Investment grade or junk, the ratings will decide Moody's, S&P, and Fitch will be your ride Migration up or down, the credit tides collide [Verse 3] G-spread measures versus government bonds so clean Z-spread assumes the whole yield curve in between I-spread uses swap rates in the pricing scene OAS adjusts for options, strips away the screen Four different spreads to show you what the premiums mean [Bridge] Merton says that equity's a call upon the firm Assets as the underlying, debt as the strike term Hazard rates in reduced-form make the models squirm CDS protection buyers pay to weather credit storms [Verse 4] Leverage ratios climbing, covenants under strain Distressed debt investors hunt for capital gain Sovereign nations stumble when their finances wane Institutional weakness brings the fiscal pain External vulnerability breaks the monetary chain [Outro] From corporate to sovereign, the principles align Credit scoring algorithms help us draw the line Default, migration, spreads - they intertwine Master credit analysis and make the knowledge shine
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