Weight of the Default Component of CDS Spreads: Avoiding Procyclicality in Credit Loss Provisioning Framework

Table 12

Adjustment coefficient for below BB- grade to be applied to BB- WDCs: CDS-based ECL versus BVAL price calibration.

Credit Metrics	Reporting Date
Frontier Communication bond: FTR 7.625 04/15/24	29/12/2017	31/1/2018	28/2/2018	30/3/2018
BVAL mid price (Px)	63.16	66.23	63.55	62.62
Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px)	36.84	33.77	36.46	37.38
Lifetime ECL based on CDS spreads and BB- WDCs	34.50	30.48	29.21	31.35
Adjustment coefficient to WDCs equating the ECLs	1.09	1.14	1.33	1.26
Average adjustment coefficient to the BB- WDC	1.20
Astaldi S.p.A. bond: ASTIM 4.875 06/21/24	29/12/2017	31/1/2018	28/2/2018	30/3/2018
BVAL mid price (Px)	53.12	66.90	61.52	59.72
Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px)	46.88	33.10	38.48	40.28
Lifetime ECL based on CDS spreads and BB- WDCs	50.61	34.13	62.26	37.46
Adjustment coefficient to WDCs equating the ECLs	0.89	0.96	0.49	1.10
Average adjustment coefficient to the BB- WDC	0.86
Sears Holding Corp bond: SHLD 8 12/15/19	29/12/2017	31/1/2018	28/2/2018	30/3/2018
BVAL mid price (Px)	50.94	48.00	42.75	33.75
Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px)	49.06	52.00	57.25	66.25
Lifetime ECL based on CDS spreads and BB- WDCs	43.45	46.70	53.44	54.42
Adjustment coefficient to WDCs equating the ECLs	1.17	1.15	1.10	1.34
Average adjustment coefficient to the BB- WDC	1.19
Windstream Services bond: WIN 6.375 08/01/23	29/12/2017	31/1/2018	28/2/2018	30/3/2018
BVAL mid price (Px)	61.88	58.89	60.22	57.61
Lifetime ECL based on BVAL (ECL_BVAL = 1 - Px)	38.12	41.11	39.78	42.39
Lifetime ECL based on CDS spreads and BB- WDCs	36.23	37.73	41.10	44.47
Adjustment coefficient to WDCs equating the ECLs	1.07	1.12	0.96	0.94
Average adjustment coefficient to the BB- WDC	1.02
Mean value of adjustment coefficient to the BB- WDC	1.07