Abstract
We estimate term structures of default probabilities for private firms using data consisting of 1,759 default events from a sample of 29,894 firms in the period between 1999 and 2014. Each firm's default likelihood is characterized by a forward intensity model employing both macro risk factors and firm-specific attributes derived from financial statements. As private firms do not have traded stock prices, we devise a methodology to obtain a public-firm equivalent distance-to-default by projection which references the distance-to-defaults of public firms with comparable firm attributes. The fitted model provides accurate multi-period forecasts of defaults for privately held firms. The reported interest rates charged to private firms are reflective of the estimated default term structure.
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