Technology vendor of the year: Moody's Analytics

Firm leverages credit market expertise to ride crest of CLO revival

andrew-jacobs-web
Andrew Jacobs, Moody's Analytics

As the renaissance of the structured credit markets in the US continues apace, issuers, trading desks and investors alike have been seeking to ramp up their analytics software in order to cope with a jump in issuance.

Transparency, granularity of detail, comparability between products and managers and accuracy in valuations are among the paramount software requirements for firms on either side of the market - and in a field littered with also-rans, only one offering has been able to provide all of those in the last 12 months, say credit market participants: Moody's Analytics' Structured Finance Portal.

Feedback from dealer clients has been glowing: "This is by far the most robust solution in the collateralised loan obligations (CLO) space that we've used. In a time of cost cutting and scrutiny of necessary resources, this is one bit of kit we can't afford to lose," says a derivatives executive at one large dealer.

As a credit risk analytics and data specialist, Moody's already has a natural advantage compared to its peers. Many market players were already making use of its products in-house, as well as getting the company to run more demanding computations, such as multi-path simulations of credit defaults and aggregations of default rates by manager.

With advances in technology, such as high-performance cloud computing and interactive web interfaces, Moody's Analytics realised that it could host its modelling calculations and make manager aggregations and other relative value information available online. The result was the Structured Finance Portal, which launched in February 2014 and was quickly hailed as the software solution the structured credit market had been waiting for.

"The portal takes our expertise, analytics and data and moves it onto the web with an accessible interface, along with a whole lot of metrics and reporting that can help clients make critical decisions," says Andrew Jacobs, director at Moody's Analytics.

A year after its launch, the portal already has 31 clients, including major global financial and advisory services companies such as Santander, KPMG and Orix, with around 50 more institutions in the pipeline waiting to get on board in the coming year, says Luis Amador, managing director and head of Moody's structured finance advisory team.

The portal not only provides analysis of the deals themselves, but also offers a lot of relative value and benchmarking analytics for individual loans, managers and industries, he adds.

Historically, in order to rank a particular collateral manager against the broader market in terms of annualised default rate, a user would have to do several data-intensive tasks. First, they must calculate a deal's annualised default rate. This is more difficult than it may seem, for a variety of reasons: defaulted assets may remain in the deal for several reporting periods, for instance, whereas the default need only be counted in the first period in which it occurs.

In addition, assets frequently lack consistent identifiers. The user would then have to perform the same time-consuming calculation for all deals in order to rank a manager versus the broader market. The default rates must then be aggregated by manager, taking into account different versions of manager names and the fact that managers may merge or otherwise change.

Finally, if the user wants to investigate the rankings further, for example by including or excluding different types of deals or drilling down into the underlying calculations, the analysis must be available in an interactive and responsive application.

"The Structured Finance Portal represents the culmination of many years of investment in order to seamlessly and instantly provide capabilities like this to users. We have consistently heard from market participants that they have attempted to do many of the things we provide in the site themselves but it's simply too onerous a job," says Jacobs.

Moody's is now working on expanding the portal's capabilities to other asset classes, including collateralised debt obligations (CDOs). The company recently acquired Lewtan Technologies, a Massachusetts-based analytical structured finance tools and data provider, which covers 200,000 bonds and 20,000 securitised deals.

In March this year, Moody's added a regulatory module to the portal, which helps financial institutions assess the potential accounting and regulatory treatment of structured finance securities, including calculating capital ratios and other portfolio metrics for the Federal Reserve's comprehensive capital analysis and review and stress-testing regime.

"A big part of our business is helping banks go through the regulatory submission process. They can do a lot of relevant analytics for this on our website - not just looking at numbers for their portfolio, but also putting their portfolio in context of the broader market," says Jacobs.

The portal is attracting a wider range of users than the firm's traditional buy-side client base. Investors are using the site to quickly analyse a tranche's relative value and get an understanding of a deal and a manager's past performance, he says.

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