Vela is deliberately transparent: every result decomposes into inputs, the formula applied, and the public source for each figure. The core building blocks:
Probability of default (PD)
The long-run benchmark default rate for the borrower's Credit Quality Step under Commission Implementing Regulation (EU) 2016/1799, Annex I — the regulatory mapping of external ratings to default probabilities. This is a public, regulator-set calibration, not a proprietary rating-agency dataset.
Loss given default (LGD)
Basel Foundation-IRB supervisory LGD (BCBS framework; EU CRR Art. 161): senior unsecured bank claims 45% (the Basel II / CRR-as-enacted value, retained as the conservative documented default; the revised CRE32.6 / CRR3 figure is 40%), senior unsecured bonds 40%, subordinated 75%, with secured claims lower according to collateral. The loan tool prices bank-loan seniorities off the 45% anchor while the guarantee-fee tool applies the seniority-specific table (e.g. 40% for senior unsecured bonds) — each export names the exact value and vintage it used.
Cost of capital
The Capital Asset Pricing Model: cost of equity = risk-free rate + β × equity risk premium, using Damodaran industry betas and country risk premia. OECD Chapter X specifically contemplates CAPM to remunerate risk capital.
Credit scorecards
Vela's own sector scorecards across 22 industries combine quantitative ratios (leverage, coverage, margin, scale, cash-flow) with qualitative factors. Each sector has its own ratio mix, weights and thresholds. The composite is expressed as a 0–100 Vela Credit Score mapped to a rating equivalent.
Structural cross-check
A Merton (1974) structural model provides an optional, independent default-risk cross-check against the regulatory PD, so the two can corroborate each other.