CreditPulse is a Machine Learning (ML) algorithm-based product, which analyses textual information from regulatory filings to detect likelihood of credit default / bankruptcy risk or expected change in credit rating of a company. The algorithm identifies default risk in advance and helps financial professionals gain first-mover advantage in investment decisions.
Features of CreditPulse
- Performs Textual Analysis of regulatory filings of listed companies in the USA
- Risk-prone companies are identified one to two quarters in advance
- The ML algorithm is highly trained with over 10 years of historical data
- The algorithm updates itself on a regular basis using deep learning technology
- Robust database with access to over 12 years of CreditPulse Score for 7,000 companies
How Does CreditPulse Work?
CreditPulse is based on a proprietary ML algorithm that analyzes the text portion of Company’s filings with the Securities Exchange Commission (SEC). The algorithm assigns a score, called CreditPulse Score, between 0 to 1, with progressively higher score indicating increasingly higher credit stress. The Product completely ignores reported financial data and instead focuses only on the text information in MD&A sections of regulatory filings.
The algorithm also gives two more scores, an upgrade score and a downgrade score in the range of 0 to 1, which are indicative of potential changes in the company’s credit rating. An upgrade score of more than 0.6 indicates a strong probability of an improvement in the company’s credit rating in upcoming quarters and vice versa.
Our algorithm picks up previous day’s filings early in the morning and calculates results instantaneously. This analysis is available to clients in the form of downloadable data using custom APIs or via email notification within minutes of filings at SEC
Our Eureka Moment
The event that triggered idea of CreditPulseThe idea of CreditPulse originated after bankruptcy filing of GT Advanced Technologies, following the breakdown of its relationship with Apple in October 2014. In GT Advanced Technologies’ case, the financial numbers, used by conventional credit default models / rating companies, published by the company preceding this, did not raise any red flags because healthy numbers were projected! But its management reports and filings did provide clues and the basic idea of CreditPulse took shape from there.
Why are Qualitative Signals More Relevant now?
Signal to Scrutinize
The CreditPulse score acts as a signal to scrutinize companies in detail, which might reveal discrepancies in the numbers.
Complex Accounting
With ever more complex accounting policies, it is a cat and mouse game for the analyst to decipher the true information set.
Turbulent Global Economy
Additional layer of protection around portfolio to shield from volatility when numbers may not represent the underlying value
Easy Money Policies
Excess liquidity in the market limits market discipline and can produce volatility which traditional metrics cannot capture.
Who Can Benefit from CreditPulse Score?
Funds Investors
- Ranking funds based on CreditPulse score of portfolio
- Attribution analysis based on CreditPulse Scores
- Create an index
Bond Traders
- Identify corporate borrowers likely to come under stress
Fund Managers
- Evaluate individual companies in the portfolio
- Create an index
Option Traders
- Help in creating a short equity portfolio
- Volatility prediction
- CDS trading
Strategists
- Monitor industry wide changes by analyzing changes in scores
- Track changes in market cap and enterprise value by CP scores
- Analyze macro economic changes by looking at CP score for entire economy
- Help in asset allocation
CreditPulse Success Stories
Our algorithm had some excellent success in detecting bankruptcies much in advance.
Mallinckrodt PLC
Feb 26, 2020: CreditPulse Score (0.908775).
Oct 12, 2020: The Company filed for Chapter 11 bankruptcy.
Superior Energy Services
May 21, 2020: CreditPulse Score (0.996416).
Dec 10, 2020: The Company filed for Chapter 11 bankruptcy
V F Corp
Aug 04, 2020: Downgrade Score (0.963984).
Dec 20, 2020: S&P downgraded the Company to A-
Bunge Limited
Feb 21, 2020: Upgrade Score (0.998255).
Nov 01, 2020: S&P Upgraded Outlook from Negative to Stable