National University of Singapore
The role of credit rating agencies has come under intense scrutiny in the recent past due to their failure to accurately rate the issuers of debt obligations and instruments. With growing uncertainty in the markets and the need for accurate results, credit rating algorithms are getting more and more complex by-the-day. Distance-To-Default (DTD), or the leverage indicator, is one of the key indicators in credit research that determines the probabilities-of-default of firms. The greater the amount of historic data available for a given firm, the higher is the accuracy of the DTD results.