Understanding Reduced Form Credit Models

ABC Corp is a mid-sized manufacturing company that recently issued a series of bonds to finance expansion projects. Analysts are trying to evaluate the credit risk associated with these bonds using a reduced form model for credit analysis.

Reduced form models characterize default risk as a stochastic process that can incorporate both observable market data and implied probabilities of default based on credit spreads. Meanwhile, they often assume that defaults occur randomly over time, influenced by macroeconomic factors.

Given the context of ABC Corp's bonds, which of the following statements about reduced form models is true?