Structuring Key Credit Risk Parameters for Regulated Electric and Gas Utilities under Alternative Moody’s Rating Methodologies: A Case Study for a Natural Gas Distribution Utility

Yıl 2021, Cilt: 15 Sayı: 2, 227 - 259, 31.08.2021

Vahit Ferhan Benli Feyzullah Yetgin

https://doi.org/10.46520/bddkdergisi.987435

Öz

Anahtar Kelimeler

Rating, Credit risk modeling

Structuring Key Credit Risk Parameters for Regulated Electric and Gas Utilities under Alternative Moody’s Rating Methodologies: A Case Study for a Natural Gas Distribution Utility

Öz

This paper elaborates the relevancy issue of a rating model in the context of credit rating analysis process
of a natural gas distribution company. Against this background, we have analysed the Moody’s Analytics Risk
Calc™ v3.1 Emerging Markets and the Regulated Electric and Gas Rating Methodology of Moody’s Investor
Services dated from March the 16th, 2017. Methodologically, the article relies on case studies namely the
Enron case and a case from regulated natural gas distribution company in Turkey. In terms of findings, Enron
case highlights the importance of point-in-time rating models over agency based rating models in terms of
default prediction. The EDF model provided a PD value of 0.65%, which corresponds to Baa3 level in Moody’s
rating agency terms. On the other hand, the REGU Model indicates the Company with “Ba” rating, which is
a “Speculative Grade”. This result indicates us a severe difference in default probabilities for the same entity.
This is consequent and in line with the informational needs of different users and if different models are used
respective to their needs. In summary, each rating model is developed by rating agencies for different purposes
and we need to choose the appropriate rating model to make accurate analysis.

Anahtar Kelimeler

Rating, Credit risk modeling, Moody's

Kaynakça

• 1. Augar, Ph. (2005): The Greed Merchants. How the Investment Banks played the Free Market Game, Allen Lane.
• 2. Bayraktar, A. (Fall 2018): Energy Transition in Turkey. In: Turkish Policy Quarterly, Vol. 17, No: 3, pp. 19-26.
• 3. BDDK (Aralık 2020): Türk Bankacılık Sektörü Temel Göstergeleri.
• 4. Bryce, R. (2002): Pipe Dreams. Greed, Ego and the Death of Enron, The Perseus Book Group.
• 5. Crouhy, M., Galai, D., Mark, R. (2000): A Comparative Analysis of Current Credit Risk Models. In: Journal of Banking & Finance 24.
• 6. Cruver, B. (2003): The Unshredded Truth from an Enron Insider: Enron, Anatomy of Greed, Arrow Books.
• 7. De Laurentis, G., Maino, R., Molteni, L. (2010): Developing, Validating and Using Internal Ratings, Methodologies and Case Studies, John Wiley.
• 8. Fight, A. (2001): The Ratings Game, John Wiley.
• 9. Fox, L. (2003): Enron, The Rise and Fall, John Wiley.
• 10. Fusaro, P.C. & Miller, R.M. (2002): What Went Wrong at Enron, John Wiley.
• 11. Glantz, M. (2003): Managing Bank Risk, An Introduction to Broad Base Credit Engineering, Academic Press.
• 12. Gilardoni, A. (2008): The World Market for Natural Gas; Implications for Europe, Springer-Verlag Berlin Heidelberg 2008.
• 13. Gaillard, N. (2012): A Century of Sovereign Ratings, Springer 2012
• 14. Langohr, H.&Langohr, P. (2008): The Rating Agencies and Their Credit Ratings: What They are, How They Work, And Why They are Relevant, Wiley.
• 15. Löffler, G. & Posch, P. (2007): Credit Risk Modelling, Using Excel und VBA, John Wiley 2007.
• 16. Friedman, M. & Schwartz, A.J. (1963): A Monetary History of the United States 1867-1960, Princeton University Press.
• 17. Jaffe, M.A. & Soligo, R. (2006): Market structure in the new gas economy, Is cartelization possible? In: Victor, D.G./Jaffe, A.M./Hayes M.H. (eds.): Natural Gas and Geopolitics, From 1970 to 2010, Cambridge 2006.
• 18. Mallaby, S. (2016): The Man Who Knew: The Life and Times of Alan Greenspan, Penguin Press.
• 19. Merton, Robert C. (1974): On the Pricing of Corporate Debt: The Risk Structure of Interest Rates, Journal of Finance 29, pp. 449-70.
• 20. Moody’s KMV (2003): Modelling Default Risk, Modelling Methodology, December 2003.
• 21. Moody’s KMV (2004): Moody’s KMV Riskcalc 3.1 Model, Next-Generation Technology for Predicting Private Firm Credit Risk, April 2004.
• 22. Moody’s KMV (2007): EDF implied Ratings, Modelling Methodology, June 2007.
• 23. Moody’s Investor Services (2009): Moody’s Global Infrastructure Finance, Regulated Electric and Gas Utilities, August 2009.
• 24. Moody’s Analytics (2010): RiskCalc v3.1, Emerging Markets Model, 25 October 2010.
• 25. Moody’s Investor Service (April 2004): Global Integrated Oil & Gas Industry, Rating Methodology.
• 26. Moody’s Investor Service (March 2017): Regulated Electric and Gas Networks, Rating Methodology.
• 27. Moody’s Investor Service (July 2018): Natural Gas Pipeline, Rating Methodology.
• 28. Moody’s Investor Service (January 2020): Annual Default Study: Defaults Will Edge Higher.
• 29. Moody’s Investor Service (28 January 2021): Default Trends Global: Annual Default Study: Following a sharp rise in 2020, corporate default will drop in 2021,
• 30. Norbert, G. (2012): A Century of Sovereign Ratings, Springer.
• 31. Ong, M.K. (1999): Internal Credit Risk Models. Capital Allocation and Performance Measurements, Risk Books.
• 32. Saunders, A.&Allen, L. (2002): Credit Risk Measurement, New Approaches to Value-at-Risk Paradigms, 2nd ed., Wiley Finance.
• 33. Smithson, Ch. (2003): Credit Portfolio Management, John Wiley.
• 34. Vasicek, O.A. (22 March 1984): Credit Valuation, White Paper, KMV Corporation.