What is a KDP Default Risk Ranking?
A KDP Default Risk Ranking quantifies KDP’s estimation of the chance that a company will default on one or more of its debt obligations. A Ranking of 1+ signifies that default is very unlikely while a 7 signifies that the company is expected either to default or make an exchange offer to avoid default. The Ranking is further enhanced by reference to a specific time horizon: the first number encapsulates KDP’s expectations within a 2-year horizon, whereas the second captures expectations within a 5-year period. On a probability basis, for example, a 2/5 might indicate a 15% chance of default, whereas a 5/6 implies a 50% chance of default. To arrive at the appropriate Default Risk Ranking, the analyst evaluates the company’s potential for generating cash flow, its financial strength and overall liquidity, the strength of its products, business plan and competitive position, and the prospects for overall growth of the industry in which the company operates. As part of this process, the an
