Do changes in distance-to-default anticipate changes in the credit rating?

Distance-to-default (DtD) from the Merton model has been used in the credit risk literature, most successfully as an input into reduced form models for forecasting default. In this paper, we suggest that the change in the DtD is informative for predicting change in the credit rating. This is directly useful for situations where forecasts of credit rating changes are required. More generally, it contributes to our knowledge about reduced form models of credit risk.