Default Probabilities of Privately Held Firms

We estimate term structures of default probabilities for private firms using data consisting of 1,759 default events from 29,894 firms between 1999 and 2014. Each firm's default likelihood is characterized by a forward intensity model employing macro risk factors and firm-specific attributes. 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 attributes. The fitted model provides accurate multi-period forecasts of defaults, leading to both economically and statistically significant benefits over benchmark models. The reported interest rates charged to private firms are reflective of the estimated default term structure