Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ.Not for distribution to the public. Copyright © 2014 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.

Rick Kanungo, CFA, FRM Senior Director, Enterprise Solutions, S&P Capital IQ

May 15, 2014

Adopting Principles For Effective Risk Data Aggregation and Internal Risk Reporting Practices

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Data Challenges In Risk Management

• Real-Time Risk Management– Nimble response to intra-day developments globally

• Risk Aggregation and Reporting– Entity hierarchy mapping across subsidiaries and vendor IDs (e.g., across rating agencies)

– Securities mapping across instrument identifiers and asset classes

– Mapping various sector classification systems

• Obligor Identification vs Ownership – Who is backstopping the issuer?

• Alternative interpretations of Investment Grade– Use of Market Implied Credit Measures (CDS, Bond Yields)

• Quantifying Market Activity for Corporate Bonds– Market Activity Score

• Country Risk vs Sovereign Risk– Challenges faced by a corporate in doing business in a country can be different from that

faced by the government in that country

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Real Time Risk Management

26th Feb: 161 quotes

27th Feb: 157 quotes

28th Feb: 74 quotes

3rd Mar: 282 quotes

4th Mar: 221 quotes

Quote Volume Spiked on Monday March 3rd and

spreads widened sharply

Cox Communications August 2, 2013

Intra-Day Credit Default Swap (CDS) Moves

Russian Sovereign CDS

March 3rd, 2014

For illustrative purposes only. Source: S&P Capital IQ CDS data.

CDS Spread doubled within

one hour

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Real Time Risk ManagementStandard & Poor’s WatchNeg Ratings Actions – Sample

Company Name Exchange:Ticker WatchNeg Date WatchNeg Time (GMT)

AerCap Holdings N.V. (NYSE:AER) NYSE:AER 12/16/2013 16:41:19.516Banco Safra S.A. - 03/26/2014 5:16:13.254Banco Votorantim S.A. - 03/26/2014 5:16:29.036Bco Estado do Rio Grande do Sul SA (BOVESPA:BRSR6) BOVESPA:BRSR6 03/26/2014

5:17:02.795China Development Financial Holding Corporation (TSEC:2883) TSEC:2883 02/12/2014

8:06:30.421Energen Corp. (NYSE:EGN) NYSE:EGN 04/09/2014 17:02:50.059International Lease Finance Corp. - 12/16/2013 16:50:14.803Leighton Holdings Limited (ASX:LEI) ASX:LEI 03/11/2014 4:05:48.795Oi SA (BOVESPA:OIBR4) BOVESPA:OIBR4 10/02/2013 21:38:49.745SLM Corporation (NasdaqGS:SLM)* NasdaqGS:SLM 05/29/2013 14:30:25.595Telemar Norte Leste SA - 10/02/2013 17:38:49.741

Market Participants Are Requesting Low Latency Notifications

Source: S&P Capital IQ data. As-of April 28, 2014. Credit ratings and analyses are provided by Standard & Poor’s Ratings Services, which is analytically and editorially independent from any other analytical group at McGraw Hill Financial, including S&P Capital IQ. * SLM Corp was downgraded to ‘BB’ on Apr 30, 2014. The company separated into two entities via a spin-off transaction--an education loan management business (to be named Navient Corp.) and a consumer banking business (SLM Corp., which S&P Ratings will not rate).

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Consolidated View Of Exposure

ISIN

LEI Markit RED

S&P Compustat GVKEY

Parent

Valor SEDOL Other…

D&B DUNS Other…

GICS SIC ICB ANZSIC Other….

Ultimate Parent

BSYM

Industry Classifications

Organizational Hierarchy

Entity Identifiers

Instrument Identifiers

For illustrative purposes only. Not all classification codes shown.

Lattice Of Mappings

Subsidiary Tree

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Data Challenge: Mapping Entity Identifiers

Entity ID Type ValueS&P RatingsXpress Entity ID 336214Moody's Issuer Number 600050279Fitch Issuer ID 80089821Markit Red Code 7FC86RCMA Entity ID 2797S&P Compustat GVKey 10121LEI – GMEI 4K8SLPBF5DXXGPW03H93D&B DUNS 160002218

Leighton Holdings Ltd.Entity ID Type ValueS&P RatingsXpress Entity ID 127018Moody's Issuer Number 39700Markit Red Code QVA6A9S&P Compustat GVKey 101603D&B DUNS 750855918

SLM Corp.

For illustrative purposes only. Not all codes are shownSource: S&P Capital IQ Enterprise data

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Organizational HierarchyLeighton Holdings (ASX:LEI)

• Leighton Holdings (ASX:LEI) is majority owned (58.7% ) by HOCHTIEF Australia Holdings Ltd. which is Private

• HOCHTIEF Australia in turn is 100% owned by German parent Hochtief AG (DB:HOT)

• Hochtief AG in turn is majority owned (50.35%) by Spanish firm Actividades de Construcción y Servicios, S.A. (CATS:ASX)

• Besides global parents, Leighton Holdings Ltd. has 112 subsidiaries in Asia/ Pacific and 2 in the Middle-East

1

2

3

Truncated list of subsidiaries

3

2

1

Source: S&P Capital IQ Enterprise data

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Data Challenge: Mapping Industry Identifiers

Type Industry Code DescriptionGICS 40202010 Consumer FinanceSIC 6111 Federal & Fed.-Sponsored CreditNAICS 522294 Secondary Market FinancingICB 8773 Consumer Finance

Type Industry Code DescriptionGICS 20103010 Construction & EngineeringSIC 1081 Metal Mining ServicesNAICS 213114 Support Activities for Metal MiningANZSIC 310 Heavy and Civil Engineering ConstructionICB 2357 Heavy Construction

Leighton Holdings Ltd.

SLM Corporation

For illustrative purposes only. Not all codes are shownSource: S&P Capital IQ Enterprise data

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Data Challenge: Instrument MappingISIN: AU000000LEI5

ISO NNAVendor IDENTIFIERAT 856187B2 BBG001S5ZN24BE 8592378CH 641370DE 856187FR 955040GB 6511227ISIN AU000000LEI5US Q55190104XS 11490034

MARKET SEDOLMUN 5412031PIN B02P228ASX 6511227

Exchange Alpha Code MIC Exchange Name SymbolASX XASX Australian Stock Exchange LEIBEB XBER Berlin-Bremen LTH

BWB XSTUBaden-Wurttembergische Wertpapierborse, Stuttgart LTH

FRA XFRA Frankfurter Wertpapierborse LTHMUC XMUN Bayerische Borse in Munchen LTHOTN XOTC Other OTC Market, Washington LGTHFTGT TGAT Tradegate AG, Wertpapierhandelsbank LTHETR XETRA, Frankfurt LTH

• A single instrument can have multiple IDs from vendors, numbering agencies and exchanges

• Issuing Company: Leighton Holdings (ASX:LEI)• Issue Classification(ISO CFI): ESXUFR

NNA: National Numbering Agency.CFI: Classification of Financial Instruments per ISO 10962.MIC: Market Identifier Codes per ISO 10383.

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Market Based Credit IndicatorsSLM Corporation CDS Market Signal

• S&P Ratings put SLM Corp on BBB- WatchNeg on 5/29/2013• SLM Corp. was downgraded by S&P Ratings to ‘BB’ on 4/30/2014

• CDS based Market Signal deemed SLM Corporation as below

investment grade prior to downgrade

Source: S&P Capital IQ. For illustrative purposes only.

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Market Based Credit IndicatorsThe Interpublic Group Of Companies

• Regulations have removed reliance on Ratings for determination of

Investment-Grade• S&P Ratings (‘BB+’ ) puts Interpublic in High-Yield Zone

• CDS and PD based Market Signals deem Interpublic as Investment-GradeSource: S&P Capital IQ. For illustrative purposes only.

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Market Activity Score

Issuer: SLM Corp (now Navient)

Different Market Activity For Two Bonds From Same Issuer

CUSIP Description Market Activity Score (MAS) * MAS Date Terms & Conditions

78442FEK0US$2 bil 6.25% med-term notes ser A due 01/25/2016 1

 

5/2/2014 Issued: 1/14/2011

    

Optional Put in Event of Change in Rating or Poison Put 05/12/2014 @101.Make whole call at any time at the greater of Par or PV of Interest and Principal Discounted by Treasury Rate + 50 bps

         

78490GAU1US$1.396 mil 5.65% Ed nts due 06/15/2022

5 5/2/2014 Issued: 3/22/2007

        Par Call: 06/05/2014 @100

* For corporate and government bonds, S&P Capital IQ Market Activity Scores are based on trades from FINRA’s Trade Reporting and Compliance Engine® (TRACE®) and Xtrakter, and quotes from Xtrakter Quotes, S&P Capital IQ Quote, Tullet Prebon Government Bonds, and JSDA (Japan Securities Dealers Association) where relevant.

• No. of Trades in Last 30 days (FINRA/TRACE)• Bus. days since last Trade (FINRA/TRACE)• Bus. days since last Quote (Xtrakter)• Bus. days since last Trade (Xtrakter)

Market Activity Score – Factors and Sources• No. of Market Makers (Xtrakter)• Bus. Days since last quote (S&P Capital IQ)• No. of Dealers (S&P Capital IQ)

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Country Country Risk S&P RatingS&P Rating Outlook

CDS-Implied Market Signal

China bb+ AA- Stable a-Kuwait bbb AA StableRussia bb- BBB+ Stable bbb-Chile a- AA+ Stable a-Philippines b+ BBB- Stable bbb+Kazhakstan bb BBB+ StableQatar a AA Stable aa-Saudi Arabia a- AA- Positive aa-India bb- BBB- Negative bb+

Sovereign Risk

Country Country Risk S&P RatingS&P Rating Outlook

CDS-Implied Market Signal

Cyprus a+ B- Stable bPortugal aa- BB Negative bb+Iceland aa BBB- Stable bb+Ireland aaa BBB+ Positive a-Spain aa- BBB- Stable bbbGreece bb+ B- Stable bUnited Kingdom aaa AAA Negative aaa

Sovereign Risk

Country RiskCountry Risk Distinct From Sovereign Risk

Source: S&P Capital IQ. Lowercase nomenclature is used to differentiate these scores from actual Standard & Poor’s Rating Services credit ratings, these scores differ significantly from Standard & Poor’s rating criteria. For illustrative purposes only.

Country Risk Lower than Sovereign Risk Country Risk Higher than Sovereign Risk

As of February 27, 2014.Samples for illustration only. Not complete list of countries

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Addendum

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Probability of Default (PD)Alternate measures of Credit Risk – Market signal based

https://www.capitaliq.com/CIQDotNet/help/chp/PD_Model_Market_Signals.pdf

Entity Name Rating when put on Watch

CreditWatch

CreditWatch Date

Eventual Rating

Eventual Rating

Action Date

PD (%) 7 weeks prior

to WatchNeg

PD (%) 1 day prior to WatchNeg

PD Increase

(%)

GICS4 Country

DBA Telecommunication (Asia) Holdings Ltd. BB- NEG 06/21/2013 B 08/07/2013 0.009 0.854 9,266 4520 CYM

Dun & Bradstreet Corp. (The) A- NEG 05/23/2012 BBB+ 07/13/2012 0.011 0.864 7,436 2020 USA

Exide Technologies CCC+ NEG 05/03/2013 D 06/11/2013 0.480 9.948 1,973 2510 USAQantas Airways Ltd. BBB NEG 06/07/2012 BBB- 09/07/2012 0.669 7.551 1,028 2030 AUS

Navistar International Corp. B+ NEG 06/07/2012 B 07/09/2012 0.489 5.332 991 2010 USAValeant Pharmaceuticals International

Inc. BB NEG 05/28/2013 BB- 06/19/2013 0.005 0.049 9333520 CAN

Asahi Glass Co. Ltd. A NEG 07/18/2012 A- 08/09/2012 0.408 3.549 769 2010 JPN

PT Bakrie Sumatera Plantations Tbk. CC NEG 06/27/2012 CCC- 07/18/2012 2.396 17.949 649 3020 IDN

James River Coal Co. B NEG 02/29/2012 B- 03/22/2012 4.299 24.488 470 1010 USAHidili Industry International Development

Ltd. B+ NEG 06/26/2012 B 09/11/2012 1.714 9.444 451 1010 CYM

Lonking Holdings Ltd. BB NEG 06/05/2012 BB- 07/04/2012 0.998 5.030 404 2010 CYM

Entity Name Rating when put on Watch

CreditWatch

CreditWatch Date

Eventual Rating

Eventual Rating

Action Date

PD (%) 7 weeks prior

to WatchNeg

PD (%) 1 day prior to WatchNeg

PD Increase

(%)

GICS4 Country

Hovnanian Enterprises Inc. CCC- POS 09/19/2012 CCC+ 11/05/2012 3.112 0.179 -94 2520 USA

T-Mobile US Inc. B+ POS 10/03/2012 BB 05/01/2013 3.952 0.236 -94 5010 USA

Nexstar Broadcasting Group Inc. B POS 10/05/2012 B+ 10/24/2012 1.604 0.158 -90 2540 USA

Axiall Corp. BB- POS 04/25/2012 BB 01/15/2013 2.373 0.248 -90 1510 USARONA Inc. BBB- POS 07/31/2012 BB+ 04/12/2013 0.931 0.123 -87 2550 CANPentair Inc. BBB- POS 03/28/2012 BBB 09/28/2012 0.085 0.016 -81 2010 USA

Reliance Steel & Aluminum Co. BBB- POS 04/17/2012 BBB 07/31/2012 0.103 0.046 -55 1510 USA

Kodiak Oil & Gas B POS 06/05/2013 B+ 07/19/2013 0.719 0.371 -48 1010 USA

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SurveillanceEarly Warning From Standard & Poor’s Ratings Services MDS

Source: S&P Capital IQ. Lowercase nomenclature is used to differentiate these scores from actual Standard & Poor’s Rating Services credit ratings, these cores differ significantly from Standard & Poor’s rating criteria. For illustrative purposes only.

Norske Skogindustrier ASA Market Derived Signal(CDS signal mapped to Standard & Poor’s Ratings Services ratings scale)

• The Market Derived Signals were below Standard & Poor’ Rating, suggesting the market’s view of a possible downgrade

• Nov. 21st, 2012 and Aug. 2nd, 2013 ratings downgrades

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Sovereign Risk

• Slovenia’s CDS-Implied score was below S&P Ratings level, which was on Outlook Negative, before series of downgrades

Sovereign Ratings And CDS Spread

Source: S&P Capital IQ. Lowercase nomenclature is used to differentiate these scores from actual Standard & Poor’s Rating Services credit ratings, these cores differ significantly from Standard & Poor’s rating criteria. For illustrative purposes only.

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