PF2 Securities Unveils Open Source Government Bond Rating Tool

Policy makers, bond investors and the general public often need transparent and updated government credit ratings. Traditional rating agency practices are frequently insufficient to handle the issue of public debt.

This is where tools like Public Sector Credit Framework (PSCF) help. With the help of this framework, an analyst can set up and run a budget simulation model in an Excel workbook.

PF2 Securities Evaluations, which offers PSCF, recently joined with Public Sector Credit Solutions to introduce an open source framework for analyzing and rating sovereign, state and municipal bond issuers. PF2's Public Sector Credit Framework (PSCF) gets rid of numerous problems ailing the conventional public finance methodologies used by credit rating agencies, the company stated in a press release.

PSCF's approach is both quantitative and consistent, the company claims. It makes use of a multi-year budget simulation. With this simulation, the company can predict annual default probabilities based on the possibility of exceeding a user-specified fiscal threshold. The company then converts these default probabilities into ratings.

“Rating agency sovereign and muni bond groups do not take advantage of the power and objectivity of quantitative techniques, leaving their methodologies vulnerable to bias and inconsistency," said PF2 Consultant Marc Joffe, who previously researched and co-authored Kroll Bond Rating Agency's Municipal Bond Default Study.

PF2 is an independent consulting firm founded by a group of former Moody's analysts.

In 2009, the company announced its one-year anniversary, and that it will henceforth implement a broader range of security-level and portfolio-wide analytical devices. These devices are said to provide collateralized debt obligation (CDO) securities. With the help of the CDO waterfall model, users can analyze, for example, how much cushion he has from a default, prepayment or recovery perspective before tripping a test, suffering a principal loss, or even being completely wiped out.