Fitch Portfolio Credit Model
Fitch Ratings offers a suite of quantitative tools for evaluating default risk in credit portfolios backing collateralized debt obligations (CDOs). The models can be used for analyzing CDOs of corporate and asset-backed securities.
The Fitch Portfolio Credit Model, a Monte Carlo simulation model, simulates the default behavior of individual assets in credit portfolio. It draws on a structural form methodology that holds that a firm defaults if the value of its assets falls below the value of its liabilities (also referred to as its default threshold). Monte Carlo simulation is a widely used tool in finance and allows the modeling of the distribution of portfolio defaults and losses, taking into account default probability and recovery rates as well as the correlation between assets in a portfolio.
The main outputs of this model are the rating default rate (RDR), rating loss rate (RLR) and the rating recovery rate (RRR) corresponding to each rating stress. The model outputs also include various portfolio statistics as well as a portfolio's default and loss distribution and the aggregate distribution of defaults over time. The Fitch Portfolio Credit Model is not a cash flow model and does not take into account structural features such as payment waterfalls or excess spread. The RDR, RRR and timing of defaults are inputs to be used in the cash flow model. For synthetic deals that do not benefit from structural support, the RLR shows the calculation of the minimum credit enhancement for each rating.
2.16.1 - Release Date July 2023
Fitch has released an updated model that reflects the changes to the criteria for Corporate CLO and CDOs published on 21 July 2023.
2.16.0 - Release Date March 2023
Fitch has released an updated model that reflects the changes to the criteria for Corporate CLO and CDOs published on 30 March 2023. The main change reflects the updated criteria to floor the notching for corporate issuers on rating watch negative at a rating level of ‘CCC-‘.
2.15.2 - Release Date January 2023
Minor updates to support internal tools.
2.15.1 – Release Date: September 2022
Fitch has released an updated model that reflects the changes to the Covered Bonds and CDOs Public Entities’ Asset Analysis Rating Criteria as Published on 21 September 2022. The update also incorporates additional fields for Balloon Payments and Borrower Level Collateral in the SME module as well as a number of other minor improvements.
2.14.0 – Release Date: October 2021
This version reflects the SME Balance Sheet Securitisation Rating Criteria.
2.13.2 – Release Date: September 2021
This version reflects the new criteria for Corporate CLOs and CDOs; the exposure draft for SME Balance Sheet Securitisation Rating Criteria; the new criteria for Covered Bonds and CDOs Public Entities Asset Analysis Rating Criteria and the updates to the Structured Finance CDOs Surveillance Rating Criteria.
2.13.1 – Release Date: August 2021 – Exposure Draft Version for Corporate CLOs only
This version reflects the changes as proposed in the Exposure Draft for the criteria for Corporate CLOs and CDOs. During the exposure draft period this model version will be used for assigning new ratings, while the previous version continues to be used for existing ratings.
2.12.0 – Release Date: December 2020
Minor updates to report statistics including the amortization profile and weighted average floor schedule.
2.11.0 – Release Date: October 2020
Fitch has released an updated model that reflects the new criteria for Corporate CLOs and CDOs and the Covered Bonds and CDOs Public Entities’ Asset Analysis Rating Criteria both published on 16 October 2020.
2.10.0 – Release Date: August 2020
Fitch has released an updated model that reflects the current criteria as well as the exposure draft criteria for Corporate CLOs and CDOs as published on 17 August 2020.
2.8.1 – Release Date: October 2019
This release contains runtime performance improvements, there are no criteria changes and portfolio default, recovery and loss rates remain unchanged compared to version 2.8.0.
2.8.0 – Release Date: October 2019
This release incorporates changes to the SME module, which was updated in line with the updated UK RMBS criteria published on the 4th October 2019.
2.7.0 – Release Date: October 2018
This release incorporates the additional field for mortgage mandate and mortgage inscription amount for SME loan collateral primarily in Belgium. Please review the corresponding press release for details on the changes.
2.6.1 – Release Date: February 2018
This release incorporates the updates to the SME Balance Sheet Securitisation Rating Criteria and the Global Rating Criteria for CLOs and Corporate CDOs both published 23 February 2018. Please review the corresponding press release for details on the changes.
2.6.0 – Release Date: December 2017
This release includes an interface to the Resi EMEA model that incorporates the updated European RMBS Rating Criteria, published 27 October 2017. The link to Resi EMEA is used to analyse recovery values for Residential mortgage collateral in European SME Portfolios.
2.5.6 – Release Date: July 2017
This release incorporates the updates to the CLO and Corporate CDO Rating Criteria published July 2017. The main change relates to the OCU methodology for CLO portfolios and the generic recovery assumptions for corporate debt from group B countries.
2.5.5 – Release Date: March 2017
This release incorporates the updates to the SME Balance Sheet Securitisation Rating Criteria published March 2016. The main change relates to the OCU recovery multiplier for SME borrowers from 0.75 to 0.5.
2.5.3 — Release Date: January 2017
The previous release contained the wrong recovery assumptions for corporate and public sector exposures. This release has the correct assumptions in line with the latest criteria Asset Analysis Criteria for Covered Bonds and CDOs of European Public Entities published January 2017 and Global Rating Criteria for CLOs and Corporate CDOs published September 2016.
2.5.2 — Release Date: January 2017
The release incorporates the updates to the criteria Asset Analysis Criteria for Covered Bonds and CDOs of European Public Entities published January 2017. The updates includes revised recovery rate assumptions for Municipal debt. The release also corrects an error. The correlation assumptions of public sector debt were incorrect in version 2.5.0 and version 2.5.1.
2.5.1 — Release Date: October 2016
This release corrects an error in the previous release, where corporate debt from Puerto Rico was incorrectly mapped to group D country recovery assumptions. This was changed in this release, and corporate debt from Puerto Rico receives the same assumptions as corporate debt in the US.
2.5.0 — Release Date: September 2016
This release incorporates the updates to the Global Rating Criteria for CLOs and Corporate CDOs published September 2016. The main change relates to the country groupings for corporate borrowers which were changed in line with the corporate criteria. In addition the model was change to exclude defaulted assets from the simulation. Two sets of RDR, RRR and RLR results are reported. One is based on the simulation results for the performing portfolio and the second adds the defaulted assets and the corresponding loss given default to the performing portfolio. For performing portfolios without defaulted assets the results remain unchanged. For portfolios including defaulted assets the results inclusive of the defaults can be marginally different compared to the previous version. This is due to the changed sequence of random numbers. Furthermore all statistics calculated by the model are now based on performing assets only. In addition the model captures now all relevant inputs for the asset cash flow model including prepayment, recovery timing and default timing assumptions.
2.4.8 — Release Date: March 2016
The new release includes a correction to the percentage of defaults portfolio statistic for ABS portfolios that include CC and C rated CREL and REIT assets. Although this statistic is displayed within the model, it is not relevant for any rating analysis performed by Fitch. As per criteria these are assumed to have defaulted. Please note that the rating relevant outputs, i.e., the rating default rate and rating loss rate, remain unchanged as such assets were already assumed to have defaulted for the simulation in previous versions. In addition the default value for the OCU PD assumptions for SME borrowers was set to 1% to match the general value recommended by the criteria.
2.4.7 — Release Date: January 2016
The release incorporates the updates to the criteria Asset Analysis Criteria for Covered Bonds and CDOs of European Public Entities published January 2016. The updates includes revised recovery rate assumptions for Spanish Municipal debt as well as revised correlation assumptions for municipal portfolios.
2.4.6 — Release Date: July 2015
The release incorporates the updates to the criteria Global Rating Criteria for CLOs and Corporate CDOs published July 2015. The use of recovery estimates for corporate portfolios is now part of the criteria. The model allows the user to enter the exact percentage recovery estimates.
2.4.5 — Release Date: March 2015
The release incorporates the updates to the criteria Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) published March 2015. In line with the criteria the PD termstructure for SME CLOs was updated. Furthermore the correlation and recovery assumptions for Irish corporate issuers were updated as a result of the upgrade of the country ceiling to AAA. The model include a new tool that allows a simplified structural analysis. Finally the model allows the input of recovery estimates alongside recovery ratings for corporate issuers, mainly for sensitivity analysis.
2.4.4 — Release Date: July 2014
The new release incorporates the updates to the criteria Global Rating Criteria for Corporate CDOs published July 2014. In line with the criteria, the mapping of corporate industries to corporate sectors was changed to include one additional sector for the industry Business Services. Furthermore the industry names were changed. Any saved portfolios containing the old industry names can be loaded, but the industries will be automatically mapped to the new industry names. Finally the input field DealMode was changed, such that Surveillance is no longer a valid selection. When loading saved portfolios the deal mode will be automatically mapped to the only allowed value which corresponds to NewDeal in the previous version. The change in industry mapping could cause differences in results to the previous version for corporate and SME portfolios. For all other asset types the results should remain the same.
2.4.3 — Release Date: March 2014
The new release incorporates the updates to the criteria Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) published March 2014. In line with the criteria the commercial MVD assumptions were updated affecting the recovery rates for SME loans secured by commercial property collateral. The results for all other asset classes remain unchanged. In addition we added more summary statistics for SME portfolios and revised the layout of the Portfolio report.
2.4.1 — Release Date: August 2013
The new release incoporates the updates to the criteria Global Rating Criteria for Corporate CDOs published August 2013. The updates primarily related to updated recovery assumptions for corporate debt and revised notching for assets on rating watch negative and outlook negative. In addition as Fitch no longer assigns issuer default ratings of CCC+ and CCC- the default rates for these rating categories were set to be the same same as for CCC ratings. and the CCC+ model output was removed. Lastly the portfolio generator functionality was removed from the model as it was no longer used by the analytical groups.
2.3.2 — Release Date: April 2013
The new release incorporates the updates to the criteria Criteria for Rating Granular Corporate Balance-Sheet Securitisations (SME CLOs) published March 2013. In addition the version includes updated functionality that allows users to model asset specific recovery caps for loans to SME borrowers.
2.3.0 — Release Date: October 2012
This version includes additional functionality for analysing portfolio of public sector debt according to the proposed criteria Asset Analysis Criteria for Covered Bonds of European Public Entities. The criteria was published as exposure draft to seek market comments. The PCM module is a beta version until the criteria is finalised. There are no other significant changes that would impact the main results compared to version 2.2.8. This version also includes additional portfolio statistics including heatmaps of the underlying portfolio.
2.2.8 — Release Date: December 2011
There is no change in the underlying criteria methodology and the portfolio default, recovery and loss rates remain unchanged compared to version 2.2.5. The new release includes additional functionality for analyzing SME portfolios. The new version allows the user to enter generic data and corresponding mapping tables for all non-numeric fields. This version also produces extended portfolio statistics for each of the supported asset types.
2.2.5 — Release Date: June 2011
The new release incorporates the updates to the criteria Criteria for Rating European Granular Corporate Balance-Sheet Securitisations (SME CLOs). The model identifies all obligors that represent more than 50bps of the portfolio and applies the stress as described in the criteria report.
2.2.4 — Release Date: October 2010
The new release incorporates the updates to the structured finance criteria as described in the Criteria Report Global Rating Criteria for Structured Finance CDOs, October 2010. This release includes also the following new functionality for analyzing SME portfolios; (i) Standard Amortization Profile. Based on the current balance, the maturity date, payment frequency and interest rate PCM computes standardized amortization profiles for linear and annuity loans. (ii) Collateral analysis for Residential and Commercial Property Collateral. For Residential collateral backing SME loans PCM calls the Fitch ResiEMEA model, which computes the collateral value after indexation and MVD in line with the Residential Mortgage Backed Criteria. To use this functionality ResiEMEA needs to be installed alongside PCM.
2.2.2 — Release Date: July 2010
The new release incorporates the updates to corporate criteria as described in the Criteria Report Global Rating Criteria for Corporate CDOs, July 2010.
2.2.1 — Release Date: April 2010
The new release provides enhanced functionality including the following; (i) corporate SME portfolios are incorporated as a separate asset class rather than a module, which allows to analyze mixed portfolios of large corporates and smaller to medium sized corporates. (ii) portfolio files are saved in an XML format rather than excel (iii) additional functionality for corporate SMEs, including NACE industry codes, one year pd input and delinquency indicator.
2.1.7 — Release Date: July 2009
The new release includes the functionality for analyzing granular portfolios of small and medium sized corporates (SMEs) as described in the Criteria Report Rating Criteria for European Granular Corporate Balance Sheet Securitisations, July 2009.
2.1.4 — Release Date: April 2009
The new release includes the functionality for analyzing granular portfolios of small and medium sized corporates (SMEs) as described in the Exposure Draft Report European Rating Criteria for Granular Corporate Balance Sheet Securitisations (SME CLOs), April 2009. The SME module is a beta version for the duration of the exposure period. The new version also offers enhanced functionality including multi threading architecture as well as additional utility functions. These are described in more detail in the model handbook. The new version is Fitch's main quantitative rating tool for structured credit and incorporates the latest criteria for corporate and abs portfolios.
2.1.0 — Release Date: December 2008
The new release includes additional functionality for analyzing Structured Finance CDOs as described in the Criteria Report Global Rating Criteria for Structured Finance CDOs, December 2008. The methodology also covers REIT and CReL assets.
1.1.10 — Release Date: July 2008
This version allows users to analyze corporate CDOs in line with Fitch's Criteria described in the Report Global Rating Criteria for Corporate CDOs, April 2008.