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Default VECTOR 3.1 Model User Manual

1. Recovery Rates for Corporates CASH A BBB BBB BBB BB 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 ec 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 TESTE 100 000 16 000 17 000 17 000 17 000 18 000 18 000 18 000 19 000 19 000 19 000 19 500 EENAA 100 000 12 000 12750 12750 12750 13 500 13 500 13 500 14 250 14 250 14 250 14 625 LO 100 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 MES IM 100 000 20 000 21 250 21 250 21 250 22 500 22 500 22 500 23 750 23 750 23 750 24 375 MES rey SM 100 000 12 000 12 750 12 750 12 750 13 500 13 500 13 500 14 250 14 250 14 250 14 625 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 ES 100 000 16 000 17 000 17 000 17 000 18 000 18 000 18 000 19 000 19 000 19 000 19 500 CoS 100 000 12 000 12 750 12 750 12 750 13 500 13 500 13 500 14 250 14 250 14 250 14 625 LA 100 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 Senior Unsecured IG 100 000 20 000 21 250 21 250 21 250 22 500 22 500 22 500 23 750 23 750 23750 24 375 TTS 100 000 12 000 12 750 12750 12 750 13 500 13 500 13 500 14 250 14
2. Loss Distribution 0 01 5 0 005 Attachment Points G Portfolio Properties Once the portfolio has been entered the user can verify the inputs by selecting Calculate Portfolio Statistics from the Calculations drop down Ctrl Shift A The model will highlight any invalid inputs and provide an option for each via a drop down menu The user needs to ensure that all inputs correspond to the format required prior to running the simulation Selecting the Calculate Portfolio Statistics drop down will calculate the portfolio statistics and the following portfolio properties VECTOR 3 1 computes a number of average statistics for the CDO portfolio 1 The Portfolio Notional Amount is the sum of the par value of all assets in the CDO portfolio For synthetic CDOs of CDOs the Portfolio Notional Amount shows the notional of the master CDO portfolio including all stand alone assets as well as the notional of each of the inner CDO tranches If an asset is referenced in multiple inner CDO s its value will be appropriately tallied when the notional of the inner CDO is calculated Derivative Fitch www derivativefitch com The Initial Portfolio WAL is the average of the weighted average lives of all assets in the CDO weighted by the assets par value excluding Cash The weighted average life of each asset is calculated as the time from the CDO evaluation date to its Expected Weighted Average Maturity Date using a 30 360 day count
3. 3 01 6 95 6 95 5 85 8 46 9 83 6 95 7 76 9 83 7 72 100 00 7 40 9 83 10 52 n 114x 18 11 18 11 13 13 14 78 17 25 18 11 15 94 17 25 16 17 7 40 100 00 16 98 9 92 12 9 08 15 89 15 89 1 13 17 28 18 14 15 89 16 62 18 14 16 51 9 83 16 98 100 00 13 50 14 9 55 10 32 10 32 8 32 10 92 113 10 32 10 22 n 9 09 10 52 9 92 13 50 100 00 8 5 48 10 57 10 57 6 55 KALA 13 55 10 57 12 08 13 55 12 59 7 274 12 32 4 49 8 84 100 12 98 22 38 22 38 37 314 8 76 8 20 22 38 11 42 8 20 10 26 5 85 13 13 13 8 32 6 12 98 22 38 22 38 37 314 8 76 8 20 22 38 42 8 20 10 26 5 85 13 13 1 13 8 32 6 5 48 1 57 1 57 6 55 13 11 13 55 1 57 12 08 13 55 12 59 7 274 12 32 4 49 8 84 14 5 99 1 65 11 65 6 16 15 05 14 87 1 65 13 08 14 67 13 48 9 24 13 11 17 27 13 36 12 6 27 13 05 13 05 849 14 85 15 92 13 05 14 40 15 92 14 70 7 57 14 97 16 64 9 53 12 6 30 10 28 28 5 90 14 27 15 42 10 28 13 44 15 42 13 25 8 32 13 31 15 76 10 01 12 6 27 13 05 13 05 8 49 14 85 15 92 13 05 14 40 15 92 14 70 757 14 97 16 64 9 53 12 19 50 13 45 13 45 12 98 6 99 10 91 13 45 9 82 10 91 7 99 9 01 ni 9 08 9 55 5 10 91 14 66 14 66 8 20 16 05 23 73 14 68 16 66 23 73 16 14 9 83 17 25 18 14 1 13 13 9 48 17 68 17 68 14 92 150 13 46 17 68 13 22 13 46 14 66 6 42 14 81 13 24 6 39 9 9 08 15 89 15 89 1 13 17 28 18 14 15 89 16 62 1
4. 350 3 74 049 112 182 257 33x 418 5034 590 6794 726 406 21 320 4284 5354 643 75 860 968 10 18 179 33 4754 613 7 48 879 10 09 136 1262 13 53 368 590 7774 946 Mo 12464 13844 BX 1643x 1846 647 86 9 39 1168 1363x 15374 16 95 1842 1979 21094 2284x 862 1228 181 1750 1962 2153 2330 24 94 2649 27 67 242 16 94 20 32 2314 84K 2774 29694 3152 33234 34 98 16 86 2236 26 374 2965 32474 34 984 37 244 393 426K 43 36 797 24794 29924 3420x 37934 4128 44344 47174 Areen 4852 24174 32364 38 38 433 4758 51374 548 57 98 6093 6276 30 19 3984 46874 5259 57 50 61854 65794 6940 72 75 77 00 38444 4942 5725 63544 6889 7360 77 93 8169 85 25 95 00 100 00 100 00 100 004 100 004 10 00 100 00 10 00 100 00 100 00 100 00 M 4 gt Hl WAM Distribution Portfolio Default Distribution Portfolio Loss Distribution Probabilities of Default OD Derivative Fitch www derivativefitch com B Recovery Rates This table contains Fitch s recovery rate assumptions used in the model listed in tabular format and organised by Country and Asset Type Recovery rates are also influenced by the rating scenario the higher the rating stress the lower the expected recovery The applicable recovery rate for each asset is selected by the model based on geographic location and asset type Please scroll to the right of the sheet for the recovery rates for structure finance securities
5. SEM SOF CSV COS HPD HPN OIL OIS OIE PIP DST FOD SFT TOB PLN CNO MOV REQ MDV BTC HEA MDS DRG FAG MAC IDD SHP LOD RES ALU MNG ONF PCS STL CTR Aerospace Auto Parts Automobile Manufacturers Tires Banks Ex Savings amp Loans Diversified Financial Insurance Full Line Insurance Life Insurance Property Casualty Savings amp Loan Associations Investment Services Advertising Broadcasting Publishing Building Materials Heavy Construction Home Construction Industrial Services Office Equipment Pollution Control Chemicals Commodity Chemicals Specialty Computers Consumer Electronics Diversified Technology Services Electric Components amp Equipment Semiconductors Software Consumer Services Cosmetics Household Products Durable Household Products Non Durable Coal Oil Companies Major Oil Companies Secondary Oil Drilling Equipment amp Services Pipelines Distillers amp Brewers Food Products Soft Drinks Tobacco Agriculture Casinos Entertainment Recreational Products amp Services Advanced Medical Devices Biotechnology Healthcare Providers Medical Supplies Pharmaceuticals Advanced Industrial Equipment Factory Equipment Heavy Machinery Industrial Diversified Shipbuilding Lodging Restaurants Aluminium Mining Non Ferrous Metals Precious Metals Steel Containers amp Packaging Fitch Industry Aerospace amp Defence Automobiles Autom
6. convention If Amortisation is set to Yes the assets initial WAL is calculated on the amortisation schedule of the asset The Initial Portfolio Max Life is equal to the remaining life of the longest dated asset in the portfolio For synthetic CDOs of CDOs the initial portfolio WAL as well as the Initial Portfolio Max Life is calculated for the master CDO and incorporates the term of each of the inner CDO tranches specified on the portfolio definition worksheet 1 The weighted average rating WAR of a portfolio is based on the numerical Fitch Factor corresponding to each asset s rating weighted by its par value A portfolio WAR is then determined as the rating corresponding to a portfolio s weighted average Fitch Factor excluding Cash For synthetic CDOs of CDOs the WAR is computed for the master CDO portfolio excluding the inner CDO tranches for which the rating is unknown If the master only includes CDO tranches the WAR will display Cash It must be noted however that since this statistic is only an average it does not fully describe the distribution of ratings in the portfolio The Portfolio Correlation Level PCL represents the average of the pair wise correlation coefficients in the specific portfolio correlation matrix For synthetic CDOs of CDOs the PCL is calculated for the universe of underlying corporate entities and ABS assets and NOT for the master CDO portfolio It must be noted however that since this statistic i
7. per issue In certain cases Fitch will rate all or a number of issues issued by a particular issuer or insured or guaranteed by a particular insurer or guarantor for a single annual fee Such fees are expected to vary from US 10 000 to US 1 500 000 or the applicable currency equivalent The assignment publication or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws the Financial Services and Markets Act of 2000 of Great Britain or the securities laws of any particular jurisdiction Due to the relative efficiency of electronic publishing and distribution Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers
8. 002213444 0 00 0 000931179 0 0000106 0 00114571 0 001010455 0 0000337 0 00105968 0 002121279 0 000389223 0 000413293 0 00 0 000975477 0 000485523 0 00028756 0 00093753 0 000592536 0 00137319 0 001877673 0 00062075 0 001036197 0 00 0 000153356 0 00087714 0 00040179 0 000405 0 000638 0 00087071 0 0009072 0 000928782 0 000548475 0 00 0 001176737 0 000664624 0 00136236 0 00161 0 00242 0 001622 0 0015967 0 000190756 0 001525901 0 0f 0 000438 0 000775242 0 00121558 0 000655211 0 00022094 0 00028493 0 000489893 0 00049918 0 000923263 0 00 0 00123 0 00000859 0 00025238 0 00108407 0 000622565 0 00060553 0 000609654 0 000812927 0 001775788 0 00 0 001431437 0 001385296 0 00129429 0 001197878 0 00035343 0 0006279 0 0000149 0 00082369 0 000933226 0 00 0 000286812 0 000655233 0 00087558 0 000711431 0 000742285 0 000806 0 00189 0 000295532 0 000660687 0 00 0 001307811 0 000238245 0 00149109 0 000612357 0 001813132 0 00137 0 00116 0 001869841 0 000298021 0 00 0 000627514 0 0000814 0 00032547 0 000240945 0 00044015 0 0000303 0 0000529 0 00048684 0 000260668 0 0 0 000700994 0 0000797 0 00036263 0 000249215 0 00036161 0 00033706 0 000143 0 00025638 0 000644021 oc 28 0 000216467 0 00070478 0 00080763 0 000565369 0 00013765 0 00214898 0 0000526 0 000343733 0 001966101 0 00 an an nonpn Loonie on pon4 a4n 9 NANIOERA n onnaassn ao nnn9n a nonan nnnnanTI 7 pone nm gt MZ Portfolio Default Distribution Portfolio
9. can be selected as Credit Events under the International Swaps and Derivatives Association ISDA definitions Neither event is captured in Fitch s study of historical default rates which was used to derive the CDO Default Matrix Therefore Fitch adjusts the Default Rates for those assets for which either one or both of these events are applicable The adjustment depends on the rating and recovery rate of each asset Calculate Portfolio Statistics automatically calculates the adjustment for each asset which is displayed in the column labelled Credit Event Adjustment No adjustment will be applied if these fields are left blank Any additional Default Probability multiplier will be applied on top of the Credit Events adjustment For example if the user enters a default probability multiplier of 110 and the Credit Event adjustment is 105 the final adjustment applied to the default probability is 110 105 115 5 Fitch Industry required For corporate entities this represents the business sector of an underlying obligor For diversified companies the applicable industry class should be derived from the Industry accounting for the majority of the company s revenues The industry together with the Country classification determines the correlation of an asset with all other assets in a portfolio applied by the model The user can select one of 25 corporate Industry sectors To standardise the Industry classification and to simplify the p
10. structural support the RLR shows the minimum credit enhancement required for each rating VECTOR 3 1 allows a look through analysis for synthetic CDOs of CDOs CDO squared portfolios The model simulates the universe of underlying assets that make up the inner CDOs and computes the loss on the master CDO taking into account the attachment and detachment points of the individual inner CDO tranches The correlation and recovery rates on the inner CDOs are simulated based on the individual underlying portfolios and no additional assumptions are required The model engine is a C compiled program embedded into a Microsoft Excel spreadsheet which serves as the user interface and contains both inputs and outputs This manual will begin with instructions for installing VECTOR 3 1 Thereafter it will address the various input sheets required to evaluate a portfolio as well as describe the individual output sheets and data produced by VECTOR 3 1 For a more detailed discussion of the VECTOR outputs and how they are used in Fitch s overall analysis see Global Rating Criteria for Collateralised Debt Obligations dated October 4 2006 available on www fitchratings com The manual will conclude with a Derivative Fitch www derivativefitch com description of the model engine and algorithms used to perform the Monte Carlo Simulation Derivative Fitch www derivativefitch com VECTOR 3 1 Definitions This section provides brief def
11. the end of the simulation run the model identifies which assets have been flagged as defaulted over the life of a transaction For each of the defaulted assets the model accounts for the par value which can be either the initial or then current amount remaining at the time of default depending on whether the user has specified an amortisation schedule The model also computes the loss for each of the defaulted assets in each of the rating scenarios taking into account the asset specific recovery rate Finally the model also records the year of each default Step 6 Default and Loss Distribution The model then sorts the portfolio loss and default rates across all simulation runs and calculates incidence frequency This is divided by the total number of simulations and then plotted to yield the portfolio default and loss distribution This approach assumes that all simulation scenarios are equally likely to occur OD Derivative Fitch www derivativefitch com Appendix II Pair Wise Correlation Based on these inputs the model constructs the pair wise portfolio correlation table that will be used in the simulation For example the pairwise correlation between two assets would be calculated as follows E Base Case Correlation 10 po m Regional Correlation Premium 5 m Sector Correlation Premium 10 p Case 1 Same Same region Same 100 assets sector Case 2 Diff assets Same region Same Py P P 10 5 10 sector Case 3
12. 1 is Fitch s main quantitative tool to evaluate default risk in credit portfolios referenced by Collateralized Debt Obligations CDOs The model can be downloaded from Fitch s website at www derivativefitch com This default simulation model analyzes CDO s of corporate assets and asset backed securities The output may then serve as an input into the Fitch Cash Flow model VECTOR 3 1 simulates defaults through a multi step process This multi step process allows the portfolio to age in a more realistic manner since the surviving assets face another period of potential default The determination of default is based on a structural form methodology which 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 The main outputs of VECTOR 3 1 are the rating default rate RDR rating loss rate RLR and the rating recovery rate RRR corresponding to each rating level The rating levels are consistent with a specific portfolio confidence interval The model outputs also include various portfolio statistics as well as the portfolio s default and loss distribution and the aggregate distribution of defaults over time VECTOR 3 1 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
13. 250 14 250 14 625 Asia Others 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 Asia Others 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 Asia Others Er 100 000 16 000 17 000 17 000 17 000 18 000 18 000 18 000 19 000 19 000 19 000 19 500 Asia Others EEEa 100 000 12 000 12 750 12750 12750 13 500 13 500 13 500 14 250 14 250 14 250 14 625 Asia Others EE 100 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 0 000 Asia Others MES IM 100 000 20 000 21 250 21 250 21 250 22500 22 500 22 500 23750 23 750 23750 24 375 Asia Others ESTE SM 100 000 12 000 12 750 12 750 12 750 13 500 13 500 13 500 14 250 14 250 14 250 14 625 Australia 100 000 24 000 25 500 25 500 25 500 27 000 27 000 27 000 28 500 28 500 28 500 29 250 Australia MS 100 000 60 000 63 750 63 750 63 750 67 500 67 500 67 500 71 250 71 250 71 250 73125 Australia 100 000 40 000 42 500 42 500 42 500 45 000 45 000 45 000 47500 47 500 47500 48750 gt MZ WAM Distribution Portfolio Default Distribution Portfolio Loss Distribution Probabilities of Default Recovery Rates Correlation Adjustments Factc gt Cimi ilahian enmmlabmds Chavkad am OG IN ONT WATE NAM Tabal bes MAMAD AM ind r Seniority CASH AAA AAs AA AA Ae A A BBB BBB BBB BB BB SF AAA Senio
14. 6 0 000718047 0 0000309 0 00 0 001904857 0 000767623 0 00048643 0 00208841 0 000059 0 00186687 0 001848688 0 000454608 0 000173269 0 00 0 00133 0 000311 0 0000665 0 001672148 0 001183773 0 00019531 0 002443162 0 000683574 0 000634221 0 00 0 00196 0 00199796 0 00099327 0 00084442 0 000308295 0 00182185 0 002669292 0 000648664 0 000188123 0 00 0 000838 0 00019901 0 00017983 0 002754268 0 00029254 0 00085395 0 001783611 0 00068184 0 000232182 0 00 0 00175288 0 002323653 0 00141955 0 000596752 0 00047879 0 00224911 0 001147751 0 001713324 0 000429339 0 00 0 000353476 0 000594606 0 00127487 0 000288041 0 002135851 0 00074368 0 000629698 0 001267795 0 000533031 0 00 0 00181491 0 000338098 0 00204826 0 001100022 0 002818185 0 00049097 0 001066878 0 002342754 0 00154247 0 00 0 000830624 0 000190079 0 00086705 0 001243744 0 000478454 0 00100317 0 001322527 0 000951698 0 000289451 0 00 0 001253767 I 0 00035763 0 00084008 0 002271615 0 0000745 0 00146373 0 001869094 0 000290559 0 000206 OC 0 000244326 0 000891851 0 00058972 0 001011661 0 000219507 0 00046985 0 001614525 0 000526761 0 0000278 0 00 0 000601 0 000315015 0 00248377 0 000851355 0 001896051 0 00080017 0 000815853 0 001341821 0 001499292 0 00 0 001598954 0 001948058 0 00057856 0 002310924 0 0015994 0 00028495 0 00084281 0 0000624 0 001343217 0 00 0 000713338 0 001302009 0 00100954 0 000465049 0 001653692 0 00111 0 00126 0 0026 0
15. 8 14 16 51 9 83 16 98 24 12 13 50 14 5 48 10 57 10 57 6 55 13 11 13 55 10 57 12 08 13 55 12 59 7 27 12 32 14 49 8 84 14 9 48 17 68 17 68 14 92 1 50 13 46 17 68 13 22 13 46 14 66 6 42 4 81 13 24 6 39 9 7574 9 65 9 65 713 8 38 3 70 9 65 8 82 9 70 8 80 8 25 912 3 74 9 42 Siruilatinn comnleted Started an 01 29 2007 20714 PM Tatal time MANAA M 4 gt DIN Main Reference Obligations Asset Amortization Schedule Asset Specific Recovery Rates Simulation Summary Asset Correlation Matrix Industry aur Derivative Fitch www derivativefitch com O VECTOR Assumptions A Probability of Default This table shows Fitch s CDO default rates for various terms the maximum is 10 years and rating categories These are cumulative default rates This table also provides the basis for determining the RDR and RLR L U E F li Time Periods gears Se eS Se en eS ae a ee ee ee VEE 0 00 0 00 000 000 0 00 0 00 000 0 00 000 0 00 000 000 00 O02 0 03 005 0 08 Of 015 0194 000 00 002 005 0 09 015 0244 O34 O46 057 00 0 03 006 O12 020 03 043 0 59 0 76 0 89 00 0 03 008 0154 0 25 038 O58 0744 O96 115 003 O10 021 034 050 069 089 113 138 165 003 O12 0 23 038 056 O77 100 126 155 185 0 05 Of6 033 O84 079 1084 140 17974 218 4 0064 02 0424 0 69 1 02 1 39 181 228 2794 3 13 08 046 O79 117 158 202 249 298
16. Diff assets Same region Diff sector p p 10 5 Case 4 Diff assets Diff region Same Po P 10 10 sector Case 5 Diff assets Diff region Diff sector p 10 The user defined correlation option is based on the following factor model Y p x Fo Jp xF Jp xF Jl p p x where P P are correlation premiums for region and sector Pp is the global base correlation ao represent one of the six regional and sector factors G F represents a base economic factor F is a company specific factor The factors are assumed to be independent In addition PCL is calculated for any given 2 correlation matrix is calculated as PCL JN X N 1 i j where pi j is the pair wise correlation between security and j and N is the number of assets in the portfolio Derivative Fitch www derivativefitch com Appendix III Installation A PC B System Requirements 512 MB Memory 2 GB recommended 1 2 GHz Processor Speed Operating System Windows NT 2000 or XP Software WinZip Excel 2000 Excel 97 is not supported Excel 2003 has not been tested Other Requirements You must have administrator rights for the pc to which you are downloading VECTOR 3 1 If you do not have these rights please contact your IT department Excel Security In Excel macros must be enabled for the model to function correctly If you have administrator rights you can change the security in Excel To chan
17. Loss Distribution Probabilities of Default Recovery Rates Correlation Adjustments Factor Exposure TET een FN Ge ola es al a i oOo o NN N lela INI S le s u als N NIN ala N Bs BE BNBRE EN HA Derivative Fitch www derivativefitch com Reference Entity Feed Set up and Use The Vector Reference Entity Feed REF allows the user to load a portfolio with all of the indicative Vector 3 1 mappings simply by uploading a portfolio of names tickers Markit RED codes or Markit RED names A Download Instructions The Reference Entity Feed is updated daily by Fitch ensuring that the user has access to the most current information on their portfolio The REF can be downloaded from www fitchresearch com by selecting Surveillance gt CDO gt Tools gt Vector Reference Entity Feed B User Instructions The worksheet called Vector Data Feeder contains a list of Reference Obligations widely referenced in Synthetic CDOs with their required Vector 3 1 input fields including the Fitch rating where applicable The worksheet called Asset Browser allows the user to prepare a portfolio in the format required for Vector 3 1 An example of the usable input fields is shown when the REF is first opened This can be cleared by using the Clear Portfolio button The identifiers which can be used to search for reference entities are as follows e Asset Name e Equity Ticker an
18. SF BBB Non Senior 5 10 100 000 23 000 31 000 33 000 35 000 41 000 43 000 45 000 51 000 53 000 55 000 61 000 63 000 65 SF BBB Non Senior 0 5 100 000 20 000 28 000 30 000 32 000 38 000 40 000 42 000 48 000 50 000 52 000 58 000 60 000 6z SF BB Senior 100 000 32 000 40 000 42 000 44 000 50 000 52 000 54 000 58 000 60 000 62 000 68 000 70 000 72 SF BB Non Senior gt 10 100 000 14 000 22 000 24 000 26 000 34 000 36 000 38 000 44 000 46 000 48 000 54 000 56 000 SE SF BB Non Senior 5 10 100 000 12 000 20 000 22 000 24 000 31 000 33 000 35 000 41 000 43 000 45 000 51 000 53 000 SE SF BB Non Senior 0 5 100 000 10 000 18 000 20 000 22 000 28 000 30 000 32 000 38 000 40 000 42 000 48 000 50 000 52 gt 10x 100 000 5 000 12 000 14 000 16 000 24 000 26 000 28 000 34 000 36 000 38 000 44 000 46 000 4E 5 10 100 000 4000 10 000 12 000 14 000 21 000 23 000 25 000 31 000 33 000 35 000 41 000 43 000 48 SF B Non Senior 0 5 100 000 3 000 8 000 10 000 12 000 18 000 20 000 22 000 28 000 30 000 32 000 38 000 40 000 4z 100 000 4 000 5000 8000 10 000 12 000 18 000 20 000 22 000 28 000 30 000 32 eigiaisissia ee s s 3 s 5 a s3 8 8 2 Jofo eh e Derivative Fitch C Correlation Adjustments www derivativefitch com As part of Fitch s criteria adjustments are made to the correlation based on Region Coun
19. YI Derivative Quantifying All Sides of Risk Default VECTOR 3 1 Model User Manual O Derivative Fitch www derivativefitch com Table of Contents Changes from Vector 3 0 to 31 vasnevsmmeeetsenneneenvutmtedduikatdrkadannasee tene 3 A Addition of Single Tier Comparison functionality rnvorrrrrnnnnnnnnnnnrrrrnnnnnnnnnnnnnnrrnnnne 3 Changes from Vector 2 2 to Vector Jaaa et oteteccesaeteskieletest debi vagecesbidenea debet 3 An ENVER 3 B Recalibrated Assumptions ixssicies caries cenestusxrniniennsws cs sens ds chcwnsvnnany neds Oheaeswonsmexsdieboanswoesdas 3 C Updated Emerging Markets Framework rrrrrnnnnnnnnonnnnnvrrrnnnnnnnnrnnnnnvrrrnnnnenenennnnnnrrnnnne 3 SETE EE VE eetaeets 4 VECTOR 3 1 Definitions as actnctitncisessiocintdiadituraiestunibieseieaiasuets ce ahere lashes deiveaiunedieiehanions 6 A Reference Obligation Terms cic cescicsctecctestsaceen ectes deaadansad covtesdesazeusdd aceterteentiasteseceets 6 B ET NTN ee ene meee er cer met eee eee ee ee ere 9 C VECTOR 31 Model Short Cun isiccictcctecsticetaxdatconsed cigokasdubac taveldvesandsganavanauetaxtebeniauenines 9 15 eco Ie pee nee eam a RP tr Oe a er ee eae or re een ner E ere rer ere nner er ere rere 10 As MENE 10 B Portfolio Setup ssnst rner n er n er E En N Ein TEN EnA ESE 11 Ge Sample PN seereis e E p a E eels ide 11 D CDO Squared Setup sesca aeaa EEEE 11 E Single tier CDO Comparator set Up cicccscincccnsnctscsascinasceancseonnsstsdussuvst
20. ally with the Asset Type description differentiating the seniority of each tranche and the respective recovery rate In the event of default of a more senior tranche all of the tranches below it would default automatically However a default of a junior tranche does not necessarily have an impact on the more senior tranches For example if securities 5 6 and 7 are corporate debt from the same company Issuer 3 If a company defaults there are typically cross default provisions that would cause all of its outstanding debt to default as well regardless of the seniority or position within the company s capital structure For multiple issues from the same company all of the ratings should be that of the company s senior unsecured debt Upon the company s default the Asset Type description would dictate the recovery rates for each class of debt Since VECTOR 3 1 simulates default performance in an annual multi step process if there are multiple securities from the same issuer with different maturity dates VECTOR 3 1 is able to differentiate which bonds are still outstanding at the time of default and which ones have already matured Asset Name required This is a non unique text field that describes the asset Asset Class Tranche optional This field is for reference purposes only Derivative Fitch www derivativefitch com Asset Type required Describes the nature of the asset i e corporate or ABS and its ranking
21. ates for each year based on the asset s rating and the base default table shown on the VECTOR 3 1 Input Worksheet These cumulative default rates are converted into conditional annual default rates corresponding to the time step of the model which represent the probability of default for year x conditional upon survival up to year x For the first year the conditional default rates are equivalent to the marginal default rate and thereafter for each subsequent year using the following formula P PS ap 1 PS i l where PS is the cumulative default rate for year i P is the marginal default rate for year i For example the BBB cumulative default rates over five and six years are 1 89 and 2 3 respectively the conditional default probability of a hypothetical asset for year six given its survival over the first five years would be 0 42 The user can manually amend the default rate of any asset through the Default Probability Adjustment column on the Portfolio Definition Worksheet For example if 110 is entered that asset s default rate will be scaled by 110 Step 2 Determining the default threshold for each time step Conditional default probabilities are converted into default thresholds to give an indication of default probability for a particular obligor see below The VECTOR 3 1 model assumes asset values are normally distributed therefore the default threshold is the inverse of the cumulative normal d
22. ativefitch com CDO tranches for more information see Analysing Synthetic CDOs of CDOs available on www fitchratings com 2 The maturity date of each inner CDO 3 The universe of assets that are referenced by the underlying CDOs or the Master CDO Typically the underlying CDOs in a CDO squared structure only reference corporate assets However VECTOR 3 1 is able to model ABS assets both in the underlying CDOs as well as in the master CDO The information required for the assets in the universe are the same as for a standard CDO including items 2 3 4 6 7 9 10 11 and 15 from the list above Asset Par Value and Expected Weighted Average Maturity Date WAMD represent the par value and WAMD of assets referenced by the master CDO The asset par value should be zero for assets that are only referenced by the inner CDOs and not the master CDO 4 The reference portfolio for each of the inner CDOs by specifying the reference notional for each asset in the universe Each of the columns V to AY on the Reference Obligations sheet represents one inner CDO tranche and its corresponding reference portfolio For assets in the universe that are not referenced by the particular CDO portfolio the reference notional should be zero How to model two or more tranches from the same inner CDO with different AP DP Tranches from the same portfolio with different APs and or DPs can be modelled by copying the same reference portfolio into each tranche c
23. d Two Digit Exchange code e Markit RED Code e Markit RED Name The asset name can be searched using the drop down box in Column B Once selected the cells containing the Asset Identifiers Column M Q and the Vector 3 1 Portfolio Definition Sheet Column U AV will be populated An alternative method for populating this data is to paste one of the identifiers listed above into columns D G If the identifier is not recognized in the REF the error message Error Unrecognized ID will be displayed in that row If more than one ID is used resulting in a conflict the error message Error Multiple Conflicting IDs will be displayed in that row The user field in column allows the addition of comments or internal organizational identifiers Derivative Fitch www derivativefitch com Once a portfolio has been completed it can be exported as a Vector 3 1 Portfolio File by using the Save Portfolio button This file can then be uploaded directly into the Vector 3 1 model from the saved location Details of exposure and deal structure can then be added Appendix I Simulation Methodology The VECTOR 3 1 engine a C compiled programme with an Excel user interface generates the random default scenarios using a multi period Monte Carlo simulation as described below Step 1 Computing Conditional Default Probabilities for each asset For each asset in a portfolio VECTOR 3 1 determines the appropriate cumulative default r
24. e to disk radio button 10 Click OK A Save As window appears 11 Select a folder location for the self extracting executable 12 Click Save The file is saved to the selected location D Installing the VECTOR 3 1 Model Once you have downloaded the VECTOR 3 1 Model file you must install the application To install the VECTOR 3 1 Model 1 Locate and open the self extracting application file you saved to your PC 2 Double click the VECTOR 3 x x application file 3 The install process will run you will have to confirm acceptance of the license agreement for a second time 4 Click Next A User Registration screen appears You will be asked to enter your contact information Please take a moment and enter your Name Email Address Company Name and Phone Number The remaining fields are optional 5 An Extracting Files window may automatically appear A Setup Status window appears A message window may appear indicating the file process may take some time An MS DOS window automatically opens and closes A Setup Complete window appears 6 Click Finish Please Note The VECTOR 3 1 Model s installation wizard creates a subfolder saved in the location specified during installation The subfolder only contains the latest version of the VECTOR 3 1 Model Subsequent installations of VECTOR 3 1 will overwrite all files including previous versions of the model in the specified folder to assure that users have the latest version For t
25. each asset see Global Rating Criteria for Collateralised Debt Obligations dated October 4 2006 available on www fitchratings com The RLR is gross of any structural mitigants such as excess spread and is derived from the portfolio loss distribution in the same way as the RDR In the absence of structural support the subordination has to cover the RLR for the respective rating Rating Recovery Rate RRR The RRR shows the expected weighted average recovery rate for a particular credit portfolio in the respective rating scenario on a post simulation basis The RRR as opposed to the weighted average portfolio recovery rate captures the effect of barbelling between recovery rates on the one hand and rating and term on the other For example as the assets with the lower rating also generally have the lower recovery rate the simple portfolio weighted average recovery rate would most likely overestimate the actual recovery rate of defaulted assets Fitch generates the RRR from tiered recovery rates for each liability rating Rating Default Rate RDR The RDR shows the expected weighted average default rate for a particular credit portfolio in the respective rating scenario on a post simulation basis The RLR is gross of any structural mitigants such as excess spread and is derived from the portfolio default distribution It is the required default hurdle input into Fitch s cash flow modelling and break even analysis see Global CDO Rat
26. enncsxdersensecesesessents 13 E Asset Amortisation Schedule xrrrnnnnnvrnnnnnnnnnnnnnnnnrnnnnnnnnnnnnnnnnnrnnnnnnnennnnnnnnnennnnnesenne 14 F Asset Specific Recovery Rates Luessersvsemmtnesegammnnsviseneenek 15 G FONT 16 H SMP 18 Analytical Results amp Summary REPOS ivscccccssccsssssccesccesvecasessniescnnssecsaeussitaccnaveessensdesantesvenss 19 A Simulation SIM LY act cicee Se bstecas tee cecehedeecasteieaceancecractateaavensoeeracietvmckcandecinctrtcasucanteae 19 B LO Compari SO Lasse 21 C Portfolio Default Distribution 00i ccs0cesecssessaceneresecessiaiedehetesesssanesedeteinieresnianedeiwennees 22 D Portfolio Loss Debian 23 E MTV 24 Fe Inner CDO Overlap MAU IK criocisiectectuicetardltcahend eknamaduaae band ianea EE 24 G Asset Correlation Matrix 222csctcnctaadcctcsesctanetuidacaccetedenndaniaddeccnedennda duaieccnetercdendnatescaeaars 24 VEC TOR FNS eerie EEE 24 A Probability of BEAM uunsseseen Sene enedsnite 24 B FE 24 G Correlation Adustmenis rerien EEE EKAR 24 D Gorrelation Fars ccc ccctasbsncntecccestonicxcetatennans aa E Ea bccn EKER EES 24 Reference Entity Feed Set up and USe nnnnnannrnnnnnvvnnnnnnnnnnnnnannnrnnnnnnnennnnnnnnnrnnnnnesennnnnennn 24 A Download WSU CONG cscsaccccssradsenecsnanctnsentsaranccnesnresdsavesastedhiastsasuseaniconteetiaeaesaiine 24 B ENN re 24 Appendix l Simulation Methodology m eememmeesussesinrmjvvde hevde eivge vennina 24 Appendix ll P ir Wis Correlation isa sc
27. ent than the lower of the two For example in a typical synthetic CDO squared structure the number of corporate reference entities in each of the inner CDOs is 100 Assuming that 20 of the reference corporates are the same in two of the CDO portfolios the pair wise overlap would be 20 2 4 5 cpo1 cbo2 CD03 CD04 CD05 CD06 cbo7 cpos CDO9 CDO1I9 CDON CD012 CDO13 CD014 6 CDOI 100 00 22 50 27 50 35 00 15 00 re CD02 22 50 100 00 22 50 12 50 42 50 8 CD03 27 50 22 50 100 00 30 00 20 00 9 CD04 35 00 12 50 30 00 100 00 22 50 10 CD05 15 00 42 50 20 00 22 50 100 00 11 CDO6 12 CDO7 13 cpos 14 CDO9 15 CDO10 16 coon 17 cD012 18 CDO13 19 cDo 20 cD015 21 CDO16 22 CDO17 23 CDOI8 24 CDO19 25 CD020 26 cpo21 27 CD022 28 cpo23 29 cpo24 30 cpo25 31 D026 32 cpo27 p 33 CD028 v 4 4 MZ Inner CDO Properties Inner CDO Overlap Matrix Asset Correlation Matrix Industry Distribution Country Distribution Rating Distribution wambist a IM Sim lakinn ramnlakad Shartad an N1 90 7007 4 44 27 DM Tatal time ANNE hl INA Derivative Fitch www derivativefitch com G Asset Correlation Matrix In the VECTOR 3 1 model the user can either i specify a particular pair wise asset correlation that will then be used between all assets in a portfolio ii use Fitch s sector correlation assumptions or iii create a unique user defined correlation matrix These choices will resul
28. ge macro security Open Excel Goto Tools gt Macro gt Security Change the level to either Medium or Low If you select Medium you must click Enable Macros each time the model opens Installation Checklist Before installing and or downloading the VECTOR 3 1 Model you must C Close all open programs Meet the minimum requirements to access and install the model Have administrator rights to install the VECTOR 3 1 Model Downloading the VECTOR 3 1 Model Before you can download and install the VECTOR 3 1 Model you must have access to the Internet To download the VECTOR 3 1 Model 1 2 3 Open your Internet browser Type www derivativefitch com in the Address field The DerivativeFitch Ratings website appears Click the Credit Risk Models tab Click Vector gt The Fitch Default VECTOR model is a quantitative tool for evaluating default risk in credit portfolios backing CDOs more info Derivative Fitch www derivativefitch com 4 Click download version 3 0 now gt gt gt 5 A VECTOR model description and requirements page appears 6 Scroll down and click Download VECTOR3 1 7 The Fitch CDO VECTOR 3 1 Program Agreement page appears 8 Click Accept if you agree to the terms and to download the VECTOR 3 1 Model If you do not agree the terms indicated you will not be able to download the application A File Download window appears 9 Click the Save this fil
29. his reason no working files should be stored in the specified folder Derivative Fitch www derivativefitch com E Reinstalling the VECTOR 3 1 Model When the VECTOR 3 1 Model application files are updated you must remove and reinstall the application 1 Download the VECTOR 3 1 Model from the Fitch Website see the Downloading the VECTOR 3 1 Model section 2 Double click VECTOR 3 x x application 3 Select the Repair to reinstall the application and click Next Follow the onscreen instructions to complete reinstallation F Opening the VECTOR 3 1 Model To access the VECTOR 3 1 Model you must have downloaded and installed the proper files to you computer To access an Excel worksheet via the VECTOR 3 1 Model 1 Select Start Program Fitch Ratings VECTOR 3 1 Model 3 1 VECTOR 3 1 Model 2 The Fitch Default VECTOR 3 1 Model application appears in conjunction with Microsoft Excel G Uninstalling the VECTOR 3 1 Model To uninstall the VECTOR 3 1 Model 1 Select Start Settings Control Panel A Control Panel window appears 2 Double click Add Remove Programs An Add Remove Programs window appears 3 Select VECTOR Model 4 Click the Change Remove button The application uninstalls Note When installing new versions of Vector 3 1 older versions of Vector 3 1 will be overwritten Derivative Fitch www derivativefitch com Appendix IV Fitch Industry Mapping Dow Jones Global Classification Standard
30. hreshold amounts for a particular rating Inner CDO Rating Loss Rates Long Long Long Long AAA 4 00 4 00 3 90 4 20 AA 3 83 3 94 3414 415 AA 3 62 3 83 3 41 3 99 AA 3 30 3 30 2 98 3 62 Ae 2 86 2 86 2 53 3 20 A 2 86 2 86 250 2 98 A 2 53 2 53 2 50 2 86 BBB 167 2 26 167 2 39 BBB 155 1 55 1 55 167 BBB 155 155 155 155 BB 116 153 116 1 40 BB 116 1 16 116 116 BB 1 16 116 116 116 Short Notional Amount of Collateral 0 00 0 00 0 00 Long Notional Amount of Collateral 2 000 000 000 00 2 000 000 000 00 2 000 000 000 00 2 000 000 000 00 Initi folio WAM years 3 24 3 24 324 3 24 iti ortfolio WAR numerical 2 86 2 99 2 56 3 34 ortfolio WAR 4 BBB 4 1BBB A IBBB BBB BBB Initial Portfolio Maz Life years 3 24 3 24 3 24 3 24 Portfolio Correlation Level on 0 03 on on x M 4 gt Mi Inner CDO Properties Inner CDO Overlap Matrix Asset Correlation Matrix Industry Distribution Country Distribution Rating Distribution wambistfe IM Derivative Fitch www derivativefitch com F Inner CDO Overlap Matrix This worksheet shows the pair wise overlap matrix for the individual CDO portfolios specified on the Reference Obligations sheet The overlap or crossholdings is calculated as the number of corporate entities that are the same in any two CDO portfolios expressed as a percentage of the total number of reference assets in the CDOs if differ
31. ights reserved All of the information contained herein is based on information obtained from issuers other obligors underwriters and other sources which Fitch believes to be reliable Fitch does not audit or verify the truth or accuracy of any such information As a result the information in this report is provided as is without any representation or warranty of any kind A Fitch rating is an opinion as to the creditworthiness of a security The rating does not address the risk of loss due to risks other than credit risk unless such risk is specifically mentioned Fitch is not engaged in the offer or sale of any security A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled verified and presented to investors by the issuer and its agents in connection with the sale of the securities Ratings may be changed suspended or withdrawn at anytime for any reason in the sole discretion of Fitch Fitch does not provide investment advice of any sort Ratings are not a recommendation to buy sell or hold any security Ratings do not comment on the adequacy of market price the suitability of any security for a particular investor or the tax exempt nature or taxability of payments made in respect to any security Fitch receives fees from issuers insurers guarantors other obligors and underwriters for rating securities Such fees generally vary from US 1 000 to US 750 000 or the applicable currency equivalent
32. in the issuer s capital structure The Asset Type in conjunction with the Country determines the recovery rate for a specific asset ABS assets are differentiated by seniority and tranche size relative to the capital structure of the issuer Country required For corporate debt the country represents the geographical location of the individual company for multinationals this can be the country where the majority of assets are held Country together with Asset Type determines the applicable Recovery Rate while Country in conjunction with Industry Class determines the pair wise asset correlation with other assets in a portfolio For ABS the user should select the country based on the regional distribution of the assets For example for an RMBS bond linked to a portfolio of German mortgage loans this would be Germany ABS linked to multinational portfolios could be classified according to the largest regional concentration within the underlying portfolio VECTOR 3 1 accepts most countries worldwide If a particular country is not available under VECTOR 3 1 the user may want to use one with similar jurisdictional and market characteristics in consultation with a Fitch analyst For Cash securities it is not necessary to specify a country Recovery Rate Multiplier optional May be used to adjust base recovery rates For example to reduce the base recovery rate for a specific asset by 20 the user should input 80 If this field is left b
33. ing Criteria dated September 13 2004 available on www fitchratings com for additional details of its calculation and use C VECTOR 3 1 Model Short Cuts m Calculate portfolio statistics CTRL SHIFT A m Run Simulation CTRL SHIFT D Derivative Fitch www derivativefitch com Deal Setup A Initial Setup The Default VECTOR Model is embedded in a Microsoft Excel spreadsheet which provides the user interface and contains the model inputs and outputs In order to set up a new deal both the Main tab and the Reference Obligations tab must be properly configured 1 Choose CDO type Under Type Analysis select one of Single Tier CDO Look through CDO Square or Single Tier CDO Comparator Any CDO with the analysis of inner CDO must use Look through CDO Square analysis Select the appropriate CDO Squared Options if applicable a Cross Subordination Select the first check box if the CDO under analysis utilizes cross subordination Analyze Inner CDOs If this function is selected the model can produce the rating loss rates for up to 10 CDO portfolios per model run The results are shown on the Inner CDO Properties tab This function is primarily intended for synthetic CDOs of CDOs but may also be used for analyzing traditional CDO portfolios 3 Choose the Correlation Type There are three choices for correlation a Sector Correlation This will create a portfolio specific asset correlation matrix based on Fi
34. initions of many key terms used and seen in the VECTOR 3 1 models A Reference Obligation Terms Evaluation Date of the CDO required It is either the closing date for new transactions or the date of evaluation for outstanding deals The user can select the current date from a drop down menu or input a specific date manually in local date format e g mm dd yyyy format in the US The evaluation date is used in conjunction with the Expected Weighted Average Maturity Date to calculate the weighted average life of each asset in a portfolio as well as determine the simulation horizon The evaluation date is also used for interpolation of the intra period default As a result changing the evaluation date may have a material impact on the results Security ID required Must be a unique integer number greater than 0 e g CUSIP ISIN or RED Securities with the same Issuer ID will be treated as a single obligor Issuer ID required This is a non unique alphanumeric string that identifies each issuer This allows multiple securities from the same issuer to be entered in the portfolio and simulated as a single obligor For asset backed securities ABS this would include multiple tranches from the same ABS transaction for corporate entities various classes of debt from the same company can be entered For example if securities 2 3 and 4 are ABS assets from the same trust Issuer 2 The rating for each tranche would be entered individu
35. istribution of the conditional default rate To continue the above example the default threshold for year six would be Derivative Fitch www derivativefitch com P 0 42 2 637 Step 3 Generating correlated random variables For an N asset portfolio the model generates N random numbers from the standard normal distribution for each annual step of the simulation correlated using a Normal Copula function to approximate the multivariate distribution of asset values Technically this is achieved through a Cholesky decomposition of the portfolio correlation matrix The resulting Cholesky matrix is then multiplied by the VECTOR 3 1 of independent asset values to yield correlated asset values that reflect the particular correlation structure of this portfolio While VECTOR 3 1 assumes the individual pair wise correlations remain constant throughout the transaction the multi period framework does allow for time varying correlation Step 4 Determining which assets default The correlated random numbers which represent the asset values for each obligor in a portfolio are then compared to the corresponding default threshold If the asset value as given by the random number falls below the default threshold the model will register a default for this particular asset which will be removed from the portfolio in subsequent periods For each given simulation path the asset can only default once Step 5 Aggregating simulation results At
36. itchratings com Fitch Rating required This is the Fitch rating of the asset as of the valuation date For corporate entities the rating should be the Issuer Default Rating IDR of Derivative Fitch www derivativefitch com the company For treatment of non Fitch rated assets see Global Rating Criteria for Collateralised Debt Obligations dated October 4 2006 available on www fitchratings com For Cash securities VECTOR 3 1 assumes a 0 default probability For securities rated D VECTOR 3 1 will assume a 100 default probability and that asset will default in the first period of the simulation Default Probability Multiplier optional May be used to adjust a default probability assumed by Fitch For example to increase the default probability for a specific asset by a net 20 the user should input 120 If this field is left blank the default value will be 100 Note that any adjustment will alter the default term structure of this asset adjustments are typically done on a case by case basis and should only be made in consultation with a Fitch analyst to ensure the model accurately reflects agency assumptions Rating Watch required If this field is Negative the rating of the asset is lowered by one sub category and vice versa if the field is Positive Restructuring Obligation Acceleration optional These fields apply to synthetic transactions only for which Restructuring and Obligation Acceleration
37. lank the default value will be 100 Adjustments are typically done on a case by case basis and should only be made in consultation with a Fitch analyst to ensure the model accurately reflects agency assumptions Asset Par Value required Represents the notional or par value of each asset at closing For synthetic CDOs the asset par value represents the reference notional of each of the underlying obligors For synthetic CDO squared structures this field is used to specify the reference notional of stand alone assets referenced by the Master CDO For more details on how to use the Asset par Value for synthetic CDO squared please see Underlying CDOs below Expected Weighted Average Maturity Date required For assets with a bullet maturity it is the final maturity date For amortizing assets the user may enter the date corresponding to the weighted average life of an asset as measured from the CDO evaluation date The asset is only modelled up to the expected weighted average maturity date Alternatively users have the option of entering the amortization schedule For Cash securities it is not necessary to specify a maturity date For revolving portfolios Fitch would extend the Expected Weighted Average Maturity Date of each asset for the duration of the revolving period For more detail on the treatment of revolving portfolios see Global Rating Criteria for Collateralised Debt Obligations dated October 4 2006 available on www f
38. lt rates This conditional recovery rate calculation means that the underlying default distribution needs to construct a different loss distribution for each region of the default distribution Reviewing the simulation summary table below it is clear that the recovery rates change as we move down the capital structure of the default distribution The correlation between these variables is very strong This is an important difference between Vector and other credit models This means that the realized simulation loss rate is always greater than the default rate times severity or loss given default RLR gt RDR 1 RRR Rating Rating Rating Default Recovery Loss Rating Rate Rate Rate RDR RRR RLR AAA 38 78 34 39 25 14 AA 37 76 36 54 23 88 AA 36 73 36 54 23 40 AA 36 73 36 54 22 96 A 34 69 38 69 21 34 Linear Correlation among RDR RRR RLR RDR RRR RLR RDR 1 RRR 0 964 1 RLR 0 997 0 978 1 The table below shows the values contained in the new Asset specific Recovery Rate worksheet These values are either the values used within Vector to calculate the appropriate recovery rates for each asset for each stress scenario or the values manually specified by the user before running the analysis If the value Asset Specific RR is blank or No then this table displays the assumed recovery rate values used by Vector If the field found in the Reference Obligation worksheet is Yes then Vector will u
39. n then add or remove or change the value of any asset in that version of the CDO 10 You may also set or change the maturity date for any CDO column version 11 Up to 50 different combinations of assets can be loaded but only any specified 10 will be compared on a single simulation run 12 Once all variations of the CDO have been populated populate the Select CDO s for Comparison list on the main sheet with the up to 10 CDO s you wish to compare note remove any CDO versions that are not populated from this list to avoid an error 13 Once the simulation is run the results for the RLR s for each CDO version will be displayed on the CDO Comparison worksheet see below 14 Note that you can use the button at the top of each CDO column to save that individual version of the CDO as a normal Single tier CDO portfolio file 15 A check box at the top of column allows the highest and lowest values for RLR to be highlighted Derivative Fitch www derivativefitch com E Asset Amortisation Schedule VECTOR 3 1 is a multi period model using annual holding periods For example for a five year asset the model would simulate the asset value of the corresponding obligor for each of the five years The user can choose to model the portfolio based on the specific Expected Weighted Average Maturity Date of each asset select No under Amortisation on the Reference Obligations worksheet in which case each asset is trea
40. nscccsccnsxacssensccviecesvnnseessniescnnswecsacassdtaccnsweessensdessssesuoess 24 Appendix ME Installation ude amekenmdkana 24 System Requirements LL 2sanmminisonennmsnininsseinvmvidsrbvmintekaderenioteneske 24 B ge ee eg le RE edahetasauiaiedebuaiesaldielaiweniess 24 C Downloading the VECTOR 3 1 Model nu mmmedemmnimneiseemnieemieesetrntim b 24 D Installing the VECTOR 3 1 Model users 24 E Reinstalling the VECTOR 3 1 Model cisiciitcaicud ciconasdsaze band cbvonawd dgasendelvecswstagsuaudukeatawelas 24 F Opening the VECTOR 3 1 Model rnnnvnnnnnnnnnnnnnnnnnrnnnnnnnnnnnnnnnnnrnnnnnenennnnnsnnnrnennnetenne 24 G Uninstalling the VECTOR 3 1 Model rrsnnnnnnnnnnnnnnnrnnnnnrrnnnnnnnnnnnnnnnnrnnnnnnnnnnnnnnnnnnnnene 24 Appendix IV Fitch Industry Mapping sss iscccencscnscsascsosemuesesisesdsarceneersasesaraespenustnenaniernee 24 Derivative Fitch www derivativefitch com Changes from Vector 3 0 to 3 1 A Addition of Single Tier Comparison functionality New functionality has been added to allow a Single tier CDO to have assets swapped in and out and the different RLR s calculated and displayed in one simulation run See Deal Set up section E on page 13 User option to add notes to all reference obligations cells highlighting basic asset details when hovering over each cell for usability this is memory intensive Changes from Vector 2 2 to Vector 3 0 A 1 Ease of Use The Reference Entity Feed allo
41. o Properties Transaction Mame COX HY 6 Short Motional Amouat of Collateral 0 00 Long Hotional Amouat of Collateral titttnttttst Initial Portfolio WAR BiB 25 30 Initial Portfolio WAM years 455 Initial Portfolio Max Life years 455 Portfolio Correlation Level 048 Evaleation Date of the CDO 06 01 2006 Simulation Horizon periods 5 0 Humber of Trials 150 000 YECTOR Model Version 3 0 63 YECTOR Engine Yersion 3 0 63 Default Timing 1 45 96 19 43 13 27 2 3 15 41 4 5 5 93 v M 4 bil Main Reference Obligations Asset Amortization Schedule sset Specific Recovery Rates Simulation Summary Asset Correlation Matrix Indus 4 gt If Simulation romnleted Started an 11 99 2007 INTA PM Tatal kime 0 43 nim Rating Recovery Rate RRR The RRR shows the expected weighted average recovery rate for a particular credit portfolio in the respective rating scenario on a post simulation basis The RRR as opposed to the weighted average portfolio recovery rate captures the effect of barbelling between recovery rates on the one Derivative Fitch www derivativefitch com hand and rating and term on the other For example as the assets with the lower rating also generally have the lower recovery rate the simple portfolio weighted average recovery rate would most likely overestimate the actual recovery rate of defaulted assets In the Monte Carlo simulation each time an asse
42. obiles Automobiles Banking amp Finance Banking amp Finance Banking amp Finance Banking amp Finance Banking amp Finance Banking amp Finance Banking amp Finance Broadcasting Media Cable Broadcasting Media Cable Broadcasting Media Cable Building amp Materials Building amp Materials Building amp Materials Business Services Business Services Business Services Chemicals Chemicals Computers amp Electronics Computers amp Electronics Computers amp Electronics Computers amp Electronics Computers amp Electronics Computers amp Electronics Consumer Products Consumer Products Consumer Products Consumer Products Energy Energy Energy Energy Energy Food Beverage amp Tobacco Food Beverage amp Tobacco Food Beverage amp Tobacco Food Beverage amp Tobacco Food Beverage amp Tobacco Gaming Leisure amp Entertainment Gaming Leisure amp Entertainment Gaming Leisure amp Entertainment Health Care amp Pharmaceuticals Health Care amp Pharmaceuticals Health Care amp Pharmaceuticals Health Care amp Pharmaceuticals Health Care amp Pharmaceuticals Industrial Manufacturing Industrial Manufacturing Industrial Manufacturing Industrial Manufacturing Industrial Manufacturing Lodging amp Restaurants Lodging amp Restaurants Metals amp Mining Metals amp Mining Metals amp Mining Metals amp Mining Metals amp Mining Packaging amp Containers Deri
43. olumn The aggregated portfolio loss in each of the simulation scenarios will be the same but the tranche losses can be different due to different APs and or DPs How to model assets that are referenced by both the master CDO as well as some of the inner CDOs Each row on the Reference Obligations sheet represents a particular issuer VECTOR 3 1 allows the user to enter the master CDO reference notional under Asset Par Value and the reference notional for each of the inner CDOs in the same row A default of that particular issuer would increase the loss on both the master CDO as well as each inner CDO that references this issuer How to model senior and sub debt from the same issuer This can be done in the same way as for standard CDOs by using the Issuer ID and Security ID function in VECTOR 3 1 The user should enter two assets in separate rows with the same characteristics i e country rating and industry etc but specify one as senior and the other subordinated The issuer ID should be the same for both assets 100 asset correlation These two assets can be referenced by the inner CDOs For example if one of the inner CDOs only references the senior debt of that issuer the user should enter the reference notional in the appropriate row and column and set the reference notional corresponding to the subordinated debt to zero Derivative Fitch www derivativefitch com E Single tier CDO Comparator set up 1 Load the Single Tier p
44. orted according to the portfolio default amount and the occurrence of each value is counted In this particular example path one and two yield the same results Default Path 4 3 300 1 Paths 1 2 5 000 2 Path 3 10 300 1 Path 5 12 000 1 Path 6 15 300 1 The absolute portfolio default amounts are expressed as a percentage of the initial portfolio amount to yield the portfolio default rates The frequency of defaults is expressed as a percentage of the simulations run Derivative Fitch www derivativefitch com D Portfolio Loss Distribution The portfolio loss distribution shows the frequency of a particular portfolio loss rate in a simulation As the actual distribution may be too large the model separates the results into 10 000 bins Derivative Fitch www derivativefitch com E Inner CDO Properties This worksheet shows the rating loss rates for each of the individual CDOs specified on the Reference Obligations worksheet Rather than running individual synthetic CDO portfolios VECTOR 3 1 can model the universe of underlying corporates and determines the loss distribution and RLR s for multiple CDO portfolios The user can load up to 50 CDO portfolios on the worksheet Reference Obligations and select up to 10 out of the 50 to be analyzed in each model run by selecting Analyze Inner CDOs on the Main worksheet For synthetic structures the RLR provides an indication of the minimum t
45. ortfolio you wish to analyse changes against through Portfolio Load portfolio menu option 2 On the main tab select Single Tier CDO Comparator note once this is selected you will not be able to deselect it without clearing the portfolio first this is to avoid inadvertent loss of data 3 The reference obligations sheet opens up to the right hand side 4 The first CDO 1 column Excel column AE is your reference portfolio that you loaded and cannot be edited 5 At the top of column E is a check box Show Asset Details for every CDO If this box is checked every cell has a comments field attached to it so that the asset details from the left hand side of the sheet can be seen at a glance by hovering over the cell Please note that this can be slow to populate on less powerful PCs 6 Each column for each change to the CDO has a notes field that can be used to note the purpose for that CDO comparison i e remind you of the changes made to that column version 7 Above each column is a button that allows you to copy the contents of any other CDO column version into that column to act as a starting point 8 By right clicking on the mouse while in a selectable cell for CDO1 this is only the cells above the column heading for all other CDOs it is any cell under the header or the cells above the header you are given the option to copy that CDO asset details to any of the other CDO variations 9 You ca
46. parison When using the Single tier CDO Comparator after simulation is run this sheet is populated instead of the Simulation Summary sheet Several of the other worksheets reports below are no longer available as they would only relate to a single version of the CDO and therefore not applicable This sheet show the comparative RLR s for each version of the CDO as below The lowest RLR s are highlighted in green and the highest in RED Derivative Fitch www derivativefitch com C Portfolio Default Distribution The portfolio default distribution shows the frequency of a particular portfolio default rate in a simulation As the actual distribution may be too large for some portfolios the model separates the results into a number of bins The following example shows how the portfolio default distribution is generated in the VECTOR 3 1 model For the purpose of illustration we assume the hypothetical portfolio comprises only three bonds that are modelled in six independent simulation runs For each the model computes the total defaulted asset notional Notional Bond 1 5 000 Bond 2 3 300 Bond 3 7 000 Path 1 Path 2 Path 3 Path 4 Path 5 Path 6 Bond 1 1 1 1 1 Bond 2 1 1 1 Bond 3 1 1 1 Default Path 1 Path 2 Path 3 Path 4 Path 5 Path 6 Bond 1 5 000 5 000 0 0 5 000 5 000 Bond 2 0 0 3 300 3 300 0 3 300 Bond 3 0 0 7 000 0 7 000 7 000 Default Rate 5 000 5 000 10 300 3 300 12 000 15 300 The results of all the simulation paths are then s
47. r 100 000 80 000 82 000 83 000 84 000 85 000 86 000 87 000 88 000 89 000 90 000 91 000 92 000 9 SF AAA Non Senior 100 000 65 000 69 000 70 000 71 000 74 000 75 000 76 000 79 000 80 000 81 000 84 000 85 000 8E SF AA Senior 100 000 60 000 65 000 66 000 68 000 71 000 73 000 74 000 77 000 78 000 79 000 82 000 83 000 84 SF AA Non Senior gt 10 100 000 48 000 54 000 56 000 58 000 64 000 66 000 68 000 72 000 73 500 75 000 80 000 62 000 8 SF AA Non Senior 5 10 100 000 44 000 51 000 53 000 55 000 61 000 63 000 65 000 70 000 72 000 74 000 79 000 81 000 82 100 000 40 000 48 000 50 000 52 000 56 000 60 000 62 000 68 000 70 000 72 000 78 000 80 000 81 100 000 52 000 58 000 60 000 62 000 65 000 67 000 69 000 73 000 75 000 77 000 80 000 82 000 85 gt 10 100 000 36 000 44 000 46 000 48 000 54 000 56 000 58 000 64 000 66 000 68 000 72 000 74 000 7E SF A Non Senior 5 10 100 000 33 000 41 000 43 000 45 000 51 000 53 000 55 000 61 000 63 000 65 000 70 000 72 000 74 SF A Non Senior 0 5 100 000 30 000 38 000 40 000 42 000 48 000 50 000 52 000 58 000 60 000 62 000 68 000 70 000 72 SF BBB Senior 100 000 42 000 50 000 52 000 54 000 58 000 60 000 62 000 68 000 70 000 72 000 78 000 80 000 81 SF BBB Non Senior gt 10 100 000 26 000 34 000 36 000 38 000 44 000 45 000 48 000 54 000 56 000 58 000 64 000 66 000 BE
48. r will automatically generate the required inputs that can be copied in the appropriate fields C Sample Portfolios There are four sample portfolios available for the users reference in setting up their transactions These portfolios can be found in C Fitch Sample Portfolios All four portfolios are representative of asset types often found in these types of transactions a Corporate This is the CDX NY series 6 portfolio with the appropriate VECTOR inputs b Cash Structured Finance This is a portfolio of structured finance assets with annual amortization schedules c Synthetic Structured Finance This is a portfolio of synthetic structured finance assets where the maturities are bullets d CDO Squared This transaction demonstrates the set up of a CDO squared transaction D CDO Squared Setup VECTOR 3 1 allows a look through analysis for synthetic CDOs of CDOs CDO squared portfolios The maximum number of underlying CDOs in VECTOR 3 1 is 50 The model simulates the universe of underlying assets that make up the inner CDOs and computes the loss on the master CDO taking into account the attachment and detachment points of the individual inner CDO tranches The inputs that are required to run the look through analysis are 1 The attachment and detachment point for each of the inner CDO tranches as a of the corresponding reference portfolio which define the individual inner Derivative Fitch www deriv
49. rocess especially for large portfolios Fitch has mapped its 25 corporate Industry classes to Dow Jones global classification standard as shown in Appendix IV This enables the user to select the applicable Fitch Industry class based on the asset s Dow Jones industry code if available For ABS sectors the user can select from six major ABS sectors each with various subsectors The major sector must first be selected from the pull down menu the pull down menu in the next column will then refer to the applicable ABS sub sectors For Cash the industry None should be selected Derivative Fitch www derivativefitch com User Defined Region User Defined Sector optional These are used for the User Defined Correlation option The user can group assets into one of six custom regions and six custom sectors Amortization optional The user can select to model individual assets as having bullet maturity dates select No or as amortising assets using the amortisation schedule select Yes For more details on how to model amortising assets see page 12 Asset specific Recovery Rates optional The user can select unique tiers of recovery rates that are applied in the determination of each scenario Loss Distribution B VECTOR Output Terms Rating Loss Rate RLR shows the portfolio loss for the particular credit portfolio in the respective rating scenario taking into account Fitch s recovery rate assumptions for
50. s only an average it does not fully describe the diversity of pair wise correlations between the assets Derivative Fitch www derivativefitch com H Simulation Run On the Main page the user to is allowed to specify the number of stress scenarios used in the Monte Carlo simulation Generally the higher the number of simulations the more accurate the results will be The minimum number of trials depends on among other things portfolio size rating distribution within the portfolio and the desired percentile on the output side the higher the percentile the higher the minimum number of simulations required Fitch recommends running a minimum 50 000 trials for an approximation of the RDR RLR and at least 150 000 for finer precision For synthetic CDOs of CDOs Fitch recommends to run a minimum of 200 000 simulations at the master level due to the increased complexity of these structures Either select the Run Simulation button or choose Run from the Calculations drop down menu The simulation includes a visual timer that will display the progress of the simulation Note During the simulation it will not be possible to amend inputs in any Excel application running The time to complete the simulation will depend on among others the number of simulation runs the simulation horizon and the number of assets in the portfolio and computer hardware As a guide for a portfolio of 100 assets a 10 year simulation horizon and 150 000
51. se the values entered here to define recovery rates for each scenario If no values are entered in this sheet the assumed recovery rate values used by Vector will be displayed Asset Name ES ERE AAA AA AA A Maturity Date pe ae amp Abitibi Consolidated Inc 12 20 2010 0 20 0 21 0 21 0 21 0 23 Advanced Micro Devices Inc 12 20 2010 0 36 0 38 0 38 0 38 0 41 AES Corporation The 12 20 2010 0 36 0 38 0 38 0 38 0 41 AK Steel Corporation 12 20 2010 0 36 0 38 0 38 0 38 0 41 Other credit models usually assume recovery rate values are independent of the default rate This conditional independence is true whether recovery rates are fixed or stochastic Derivative Fitch www derivativefitch com Internally Vector simulates a default distribution for the portfolio of reference obligations nevertheless the model will use a recovery rate value for each asset that is conditional upon the default rate at each point of the default distribution The loss distribution table is actually constructed in a piecewise fashion by changing the recovery rate assumption for the losses observed at that point in the tail For example the AAA loss rate indicated in the figure below as RLRaaa uses the AAA recovery rate assumption for each asset that has defaulted in the portfolio Piecewise Loss Distribution for Vector 0 035 5 0 03 4 0 025 4 See e fo N fi a Scenario Recovery Rate Assumption changes Frequency o o a
52. simulation runs the simulation takes between two and three minutes Simulation speed can be improved by a Shutting down all other applications b Running the model on a stand alone work station c Using a computer with a 2GHz processor or higher Once the simulation is complete the application will automatically take the user to Simulation Summary page Derivative Fitch www derivativefitch com Analytical Results amp Summary Reports A Simulation Summary The Simulation Summary shows the version of the Vector model used and all of the results of the analysis the main output of which are the rating default rate RDR the rating recovery rate RRR the rating loss rate RLR and the default timing The Simulation Summary worksheet shows the RDR RRR and RLR for each rating scenario The RDR RLR and RRR are derived as the percentile of the respective distribution corresponding to the default rate implied by the rating scenario and term The percentile applied for a particular target rating incorporates the fact that the values in the Default Matrix are based on average default probabilities If no value directly matches a given percentile then the value that is equal to or greater than that corresponding percentile is taken For example in the chart above the 99 percentile corresponds to a default rate of 41 8 F Non Positive Values As NA I Emerging Mak ets Rating Default Rate Rating Recovery Rate Portfoli
53. t defaults its recovery rate in each stress scenario is recorded Fitch applies tiered recovery rates by rating scenario VECTOR 3 1 computes the weighted average recovery rate of all defaulted assets in each simulation run which make up the distribution of portfolio recovery rate The RRR is derived in a similar way as the RDR based on the percentile corresponding to the rating scenario and term Note For synthetic CDOs of CDOs the RDRs and RRR on this worksheet are for the master CDO portfolio Rating Loss Rate RLR Shows the portfolio loss for the particular credit portfolio in the respective rating scenario taking into account Fitch s recovery rate assumptions for each asset see Global Rating Criteria for Collateralised Debt Obligations dated October 4 2006 available on www fitchratings com The RLR is gross of any structural mitigants such as excess spread and is derived from the portfolio loss distribution in the same way as the RDR In the absence of structural support the subordination has to cover the RLR for the respective rating For synthetic CDOs of CDOs the RLRs on this worksheet are for the master CDO portfolio and provide an indication of the minimum attachment point for the CDO squared structure for a given rating Default Timing Represents the aggregate default allocation over time for all simulation paths The number of defaults in each year are combined across all simulation paths and divided by the to
54. t in a series of pair wise sector correlations between any two assets which are displayed in the Asset Correlation Matrix Alu v nm ET VS TS ee ee ee ee ee p 2 3 itip Advance Alleghen Allied CASE Char d Micro AK Su 5 Engs Waste Amer Amkor AMR ArvinMe Bearer Bombar Bowater NEW Celestic Comi pee Devices Corp SuppCo North Mfg Inc Techinc Corp ritor Inc USA Inc dier Inc Inc HOLLAN alne Hidd Inc LLC Amer Inc DINC Lig 100 00 13 45 13 45 12 98 6 99 10 91 13 45 9 82 10 31 7 99 9 01 11 144 9 08 9 55 5 13 45 100 00 30 72 22 38 12 91 14 66 30 72 15 10 14 66 16 55 6 95 18 11 15 89 10 32 10 13 45 30 72 10 00 22 38 12 91 14 66 30 72 15 10 14 66 16 55 6 95 18 11 15 89 10 32 10 12 98 22 38 22 38 100 004 8 76 8 20 22 38 nan 8 20 10 26 5 85 13 13 WASH 8 32 6 6 99 12 91 12 31 8 76 100 00 16 05 12 91 18 414 16 05 14 47 8 46 14 78 17 28 10 92 K 10 31 14 66 14 66 8 20 16 05 100 00 14 66 16 66 23 73 16 14 9 83 17 25 18 14 1 13 13 13 45 30 72 30 72 22 38 12 91 14 66 100 00 15 10 14 66 16 55 6 95 18 11 15 89 10 32 10 9 82 16 10 15 10 142 14 41 16 66 15 10 100 00 16 66 14 69 7 76 15 94 16 62 10 22 12 10 91 14 66 14 66 8 20 16 05 23 73 14 66 16 66 100 00 16 14 9 83 17 25 18 14 1 13 13 7 99 16 55 16 55 10 26 14 47 16 14 16 55 14 69 16 14 100 00 7 72 16 17 16 51 9 09 12
55. tal defaults across periods and simulation runs The timing distribution will be used by Fitch as the base case default timing in the cash flow model For example the profile above shows that 15 38 of the defaults occurred in year 3 However this does not mean that every single scenario had the same default distribution over time but rather that it provides an indication as to the propensity of default for a specific portfolio Industry Country Rating WAL Distribution Following the Simulation Summary tab four worksheets contain portfolio statistics including Industry and Country concentrations rating distribution and distribution of weighted average life for the CDO portfolio For example the Industry distribution shows the percentage of par value attributed to a particular Industry For synthetic CDOs of CDOs the distributions are computed for the master CDO only The inner CDOs are taking into account for the WAL and Industry Distribution but excluded for the Country and Rating distribution In order to compute the distribution for any of the underlying CDOs the user can simply copy and paste the reference notional into the column lt Asset Par Value gt on the Reference Obligations sheet and Calculate Portfolio Properties Derivative Fitch www derivativefitch com The user can save all of the VECTOR 3 1 Outputs by selecting Save Reports from the Reports drop down and specifying a file name and location B CDO Com
56. tch s assumptions The correlation coefficient for each pair of assets is based on their Country and Industry classification Pair wise Correlation PCL This functionality allows you to override Fitch criteria with a single pair wise correlation for all assets User Defined Correlation This option allows the user to assign individual correlation assumptions to groups of assets in the portfolio and provides greater flexibility than the single pair wise correlation option By selecting this option the user can allocate each asset on the Reference Obligations worksheet to one of six user defined regions and one of six user defined sectors The global correlation levels will be used between assets from different sectors and regions For assets that are either in the same region or in the same sector or both the respective sector and region premium will be added to the global base correlation Derivative Fitch www derivativefitch com B Portfolio Setup The Reference Obligations sheet contains details for each asset included in a CDO portfolio The portfolio can be input in one of three ways a Load a Portfolio Select the Portfolio dropdown and choose Load Portfolio b Manually enter the appropriate fields for each asset in the portfolio Please refer to the Definitions section for a detailed description of the usage and required values in each field c Use the Vector data feeder to input tickers or RED s The data feede
57. ted as a bullet maturity If the asset defaults prior to its Expected Weighted Average Maturity Date the model records the initial par value at closing as the default amount Alternatively the user can select Yes under Amortisation on the Reference Obligations worksheet and input an amortisation schedule showing the asset s notional at the beginning of each year for years one to 30 see example If the asset defaults the model will record the outstanding notional amount of the asset in the year of default 1 10 000 2 3 4 5 6 7 8 9 10 9 500 9 000 8 000 7 000 6 500 5 500 4 500 3 000 0 In this example VECTOR 3 1 would register a default in year five with a defaulting amount of 7 000 rather than the initial notional of 10 000 Note For revolving portfolios Fitch treats amortising assets as bullets for the duration of the reinvestment period Assuming a five year reinvestment period in the above example Fitch may model the asset using the following amortisation schedule 2 10 000 4 10 000 5 10 000 1 10 000 3 10 000 6 7 8 9 10 9 500 9 000 8 000 7 000 6 500 Note that this function is only available for the master CDO portfolio in a synthetic CDO squared structure and not for the inner CDOs Derivative Fitch www derivativefitch com F Asset Specific Recovery Rates VECTOR 3 1 induces correlation between recovery values for defaulted assets dependent upon the level of average defau
58. try and Industry Those adjustments are displayed on the second to last tab esi i an Australia Austria Belgium Brazil Canada Chile China Denmark Finland Fra German Gre Ireland Realy Phili Portu Singa United Kingdom United St zech Republic Eastern Europe Others Hungar Boma na om 12 13 14 15 16 n 18 13 20 21 22 aerospace amp defense automobiles banking amp broadcaztingtmedia cable building amp materials chemicals computers amp electronics consumer products energy food beverage amp tobacco gaming re amp entertainment health care amp pharmaceuticals idustriallmanufacturing lodging amp restaurants metals amp mining packaging amp containers paper amp forest products real estate retail general supermarkets amp drugstores telecommunications Utilities Derivative Fitch www derivativefitch com D Correlation Factors Fitch s default VECTOR model is a multi factor model and the factors for both Corporates and Structured Finance are displayed on the last tab A i uv U E U H I J Corp Sector Average Factors 1 2 3 4 5 6 8 9 0 00055 0 000180095 0 00062716 0 000682 0 000273717 0 000435 0 000983102 0 000373 0 000457212 0 0 0 000504178 0 000443508 0 00109084 0 001196682 0 001081816 0 00122458 0 00070069 0 000185 0 00103 0 00 0 000826 0 0000167 0 00069467 0 001047936 0 000733415 0 000921 0 0013
59. vative Fitch Dow Jones Global Classification Standard Continued Fitch Industry www derivativefitch com FOR Forest Products Paper amp Forest Products PAP Paper Products Paper amp Forest Products REA Real Estate Real Estate FOT Footwear Retail General SAP Retailers Apparel Retail General RTB Retailers Broadline Retail General OTS Retailers Specialty Retail General TMF Toys Retail General FDR Food Retailers amp Wholesalers RTD Retailers Drug based CMT Communications Technology FTS Fixed Line Communications ISV Internet Services CTS Wireless Communications CLO Clothing Fabrics FTR Furnishings amp Appliances Supermarkets amp Drugstores Supermarkets amp Drugstores Telecommunications Telecommunications Telecommunications Telecommunications Textiles amp Furniture Textiles amp Furniture AIF Air Freight Transportation AIR Airlines Index Transportation LDT Land Transportation Equipment Transportation MAR Marine Transport Transportation RAI Railroads Transportation TRS Transportation Services Transportation TRK Trucking Transportation ELC Electric Utilities Utilities GAS Gas Utilities Utilities WAT Water Utilities Utilities Copyright 2004 by Fitch Inc Fitch Ratings Ltd and its subsidiaries One State Street Plaza NY NY 10004 Telephone 1 800 753 4824 212 908 0500 Fax 212 480 4485 Reproduction or retransmission in whole or in part is prohibited except by permission All r
60. ws the user to load portfolios with all indicative Vector mappings simply by uploading a portfolio of Name Ticker Markit RED code or Markit RED name along with par reference amount m The initial version includes global corporates while later versions will include structured finance securities m The methodology of the Fitch Derived Rating is included for each asset A new interface including hot keys provides more intuitive navigation and improved productivity VECTOR now displays the correlation adjustments and factor loadings for the multi factor model Recalibrated Assumptions The probabilities of default significance levels and structured finance correlations have been calibrated to better reflect the market Recovery rate assumptions have been updated to reflect European market development m Senior Unsecured non IG recovery rates lowered m Senior Secured recovery rates increased in some jurisdictions m Junior Secured Mezz second lien recovery rates lowered Updated Emerging Markets Framework Correlation framework adjusted to highlight risk from region and country rather than industry basis as in developed world Sovereign recovery rates updated in line with Sovereign recovery study Derivative Fitch www derivativefitch com 3 Greater granularity and consistency in Recovery Rates for Emerging Market corporate credits Overview The Fitch Default VECTOR 3 1 model VECTOR 3

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