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Credit tools that predict trouble

By John Labate | Updated on February 01, 2006

For Emera Inc., a $1 billion electric power company based in Nova Scotia, the biggest financial risk it faced was default of its corporate customers. But as Ken McOnie, the director of finance for the owner of Nova Scotia Power, will concede, sometimes credit decisions boiled down to how he was feeling on a particular day or how much pressure he was getting from his traders. This was primarily because the company lacked sufficient data and an assessment tool to analyze the numbers. It was a situation fraught with risk, and McOnie decided he had to address it.

Although sophisticated risk analytics have tended to be the reserve of the large multinationals and financial services providers, McOnie was determined to find a tool that made sense for Emera. After reviewing the field he chose Web-based RiskCalc from Moody’s KMV Co. With RiskCalc, Emera receives a daily flow of e-mail alerts on a combination of credit sensitive terms, including payments to vendors, financial statement data and equity market information for public and private companies. “I don’t think we’d be rating down counterparty weighting limits if we didn’t have this tool,” McOnie says. “We had been reactive, and now we tend to be very proactive and have adjusted several counterparties down.”

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