Ron Borcky, global director of credit at International Paper Co. (IP), recalls his surprise back in 2001 when companies that carried investment-grade credit ratings began to "pretty much collapse." If you couldn't depend on the credit ratings agencies to spot trouble, what was the potential for hidden problems at other public companies? Borcky decided that he needed to supplement the various sources of credit data that IP already used to track its tens of thousands of customers and their ability to pay with information from CreditSights Ltd., including its BondScore, a credit risk measure that incorporates the price of a company's equity and the volatility with which it trades. "The more information I can get the better, particularly information that's plugged into the equity market," Borcky says. And that's exactly what IP is able to get from BondScore, where the risk model is based on timely market information.

When companies like Enron Corp. went into unexpected tailspins a few years ago, credit risk measures that incorporated stock prices or other financial markets data proved their mettle by picking up on the problems at the companies sooner than the credit rating agencies did. Such measures, sometimes called quantitative credit measures, have been around for years, but until recently most of the companies using them were banks, brokerages and other financial institutions. Now, some sophisticated non-financial corporations are starting to see the value and are opting for market-based credit tools as part of their assessment of the creditworthiness of their customers and vendors. Currently, CreditSights is one of three companies with quantitative credit offerings targeted at corporate credit groups.

IT IS ALL IN Z-SCORE