"When the probability of default goes to zero, default is guaranteed, " observes Christopher Whalen, managing director of Institutional Risk Analytics.
But even the elite AAA rating currently held by Uncle Sam does not imply a zero probability of default for all time.
The probability of default is the likelihood that a company will be unable to meet its financial obligations over the next 12 months.
And a more comprehensive measure of creditworthiness, probability of default, has improved to an estimated 3.2 percent from 4.6 percent a year ago.
The average probability of default translates to a B credit rating, according to Sageworks, the provider of the Business Credit Report by Sageworks.
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Bierman said the construction sector has also made gains in creditworthiness in recent months, based on the average probability of default as calculated by Sageworks.
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One problem is that investors have lost confidence in bank balance sheets, making it hard to assess what the true probability of default might be.
The probability of default is the percentage likelihood that a company will be unable to meet its financial obligations over the next 12 months.
FORBES: Private-company credit risk shows signs of improving
The probability of default for retailers improved to 3.63 percent from 3.95 percent, while improvements for the other industries were less noticeable (see chart).
FORBES: Private-company credit risk shows signs of improving
In theory, the new Basel III capital rules should be good news for bond investors since they will make banks safer, reducing the probability of default.
In fact, even Google (GOOG), a company founded in 1998 and going public less than a decade ago, has a lower probability of default than its home nation.
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Retailers also continue to experience a higher average probability of default, based on the Sageworks probability of default model, a predictive statistical model for the credit analysis of small or privately held companies.
This sort of structure would provide leverage relative to traditional direct lending by EFSF in that given a relatively low probability of default, the total debt that could be insured would be larger than the total that could be lent directly.
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Financial prospects for the U.S. have deteriorated to a state where the probability of a default in the full faith and credit of the U.S. government is actually higher than a handful of top tier U.S. publicly traded corporations.
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They could include, in no particular order of probability or potentially devastating impact on the stability of financial market, default by Greece, exit by Greece from the eurozone or a much more generous rescue deal.
That probability gives you a pretty good assessment of default risk.
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