Question

A company has corporate credit rating of “Ca” by Moody’s. What’s implied default probability over the next 4-year horizon based on Moody’s historical data?

Answer 1

According to Moody's, the purpose of its ratings is to "provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged". To each of its ratings from Aa through Caa, Moody's appends numerical modifiers 1, 2 and 3; the lower the number, the higher-end the rating. Aaa, Ca and C are not modified this way. As Moody's explains, its ratings are "not to be construed as recommendations", nor are they intended to be a sole basis for investment decisions. In addition, its ratings don't speak to market price, although market conditions may impact credit risk.
It experienced early success, selling out its first print run in its first two months. By 1903, Moody's Manual was a nationally recognized publication.Moody was forced to sell his business, due to a shortage of capital, when the 1907 financial crisis fueled several changes in the markets.

Moody returned in 1909 with a new publication focused solely on railroad bonds, Analysis of Railroad Investments, and a new company, Moody's Analyses Publishing Company.While Moody acknowledged that the concept of bond ratings "was not entirely original" with him—he credited early bond rating efforts in Vienna and Berlin as inspiration—he was the first to publish them widely, in an accessible format.Moody was also the first to charge subscription fees to investors. In 1913 he expanded the manual's focus to include industrial firms and utilities; the new Moody's Manual offered ratings of public securities, indicated by a letter-rating system borrowed from mercantile credit-reporting firms. The following year, Moody incorporated the company as Moody's Investors Service. Other rating companies followed over the next few years, including the antecedents of the "Big Three" credit rating agencies: Poor's in 1916, Standard Statistics Company in 1922, and the Fitch Publishing Company in 1924.

Moody's expanded its focus to include ratings for U.S. state and local government bonds in 1919 and, by 1924, Moody's rated nearly the entire U.S. bond market.

As the company has corporate credit rating of 'Ca' by moody's that means judged to be highly speculative and with likelihood of being near or in default, but some possibility of recovering principal and interest. In coming years to come