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How to Get Rated
The Benefits of Credit Ratings
CI Ratings credit ratings offer an independent opinion of the creditworthiness of an entity or obligor, either in general (an issuer rating) or with regard to a specific financial obligation (an issue rating).
There are multiple benefits from attaining a credit rating. A credit rating may, for example, help your institution or corporation:
- Improve the terms and conditions of external finance
- Diversify funding sources
- Increase the marketability of planned debt issuances
In our experience, many issuers find the rating process itself to be beneficial, with the level of required information and CI’s impartial analysis helping to foster transparency, identify risks and promote good governance.
Credit Rating Reports may also be used for other promotional or marketing purposes.
All rating enquiries are handled by the CI Ratings Marketing Department.
Banks, corporates and other entities interested in receiving a credit rating are typically sent details of the rating process and an outline of the financial data and other information required by CI in order to undertake a rating assignment.
At the initial stage, CI usually requests copies of the entity’s latest annual and interim financial statements, as well as a brief description of its business activities. Additional information on major subsidiaries may also be requested. If an entity would like CI to rate a financial instrument (such as a bond), details of the issue, including the type of instrument, its size and tenor are also required.
The information provided by the prospective rated entity is reviewed by CI and an assessment of the viability of the assignment is made based on a range of factors including the availability of adequate financial and non-financial information, the complexity of the assignment relative to available internal resources, and whether it is within CI’s sphere of competency.
Once the decision has been taken to proceed with a rating and agreement has been reached with the prospective rated entity regarding information disclosure and pricing, CI appoints a primary analyst, responsible for conducting the credit analysis of the entity, drafting a credit rating report and presenting all relevant information on the entity to the rating committee, which ultimately determines the credit ratings.
In order to assign and maintain a credit rating, CI must have access to information that is both reliable and sufficient in coverage to form a credible opinion, consistent with CI methodology, of the likelihood of the rated entity meeting its financial commitments on a timely basis.
Rated entities are expected to provide CI with financial statements (annual and interim) and internal information in a timely manner and to inform CI of any material changes in the financial condition and trading performance of the entity for the term of the Rating Agreement. If information is not forthcoming or is deficient, CI may decide not to assign a credit rating or, in the case of an outstanding rating, may suspend or withdraw the rating.
At the start of the rating process, CI requests four years of audited financial statements which should include: a balance sheet; an income statement; a statement of changes in equity; a cash flow statement; and notes, comprising a summary of significant accounting policies and other explanatory notes.
The prospective rated entity will also be sent a questionnaire seeking financial and non-financial information over and above that provided in their financial statements and the notes to their accounts. This may include details of major shareholders, senior management and related parties, as well as information on particular financial obligations and on and off balance sheet exposures.
For ratings related to a specific financial instrument or obligation (issue ratings), CI may also ask the issuer to provide financial forecasts, preferably covering the life of the issue, and details of the underlying assumptions.
Treatment of Confidential Information
During the rating process entities may provide CI with non-public information relating to their financial performance and operations, such as strategic plans and financial projections. Any non-public information relating to the rated entity which is obtained on a confidential basis by CI is kept strictly confidential, but may be used (without being specifically disclosed) in forming rating opinions and determining rating actions. Rated entities are provided with an advance copy of the Credit Rating Report to ensure that no confidential information is inadvertently disclosed.
The primary analyst assigned to the rated entity usually meets with the senior management of the entity at their offices to discuss, among other things: the entity’s business strategy and financial performance; the principal factors that may affect the credit rating; and CI’s rating methodology.
Rated entities are usually represented by senior personnel from the main functional divisions. These vary with the type of entity but may include the chief financial officer and staff from risk management, and investor relations as well as, in some cases, external advisors to the rated entity.
The format and duration of management meetings vary with the type and complexity of the entity’s operations and whether it is the first meeting with CI or a meeting held as part of CI’s periodic review process (where basic information on the entity is not required).
The Credit Rating Report
After the meeting, the primary analyst will draft a Credit Rating Report. During this process supplementary questions often arise, which require additional answers from the rated entity. The final draft of the report is presented to the Rating Committee and the ratings of the entity (and/or financial instrument) are decided upon.
Senior management of the rated entity is then given the opportunity to comment on the report, correct any factual errors and ensure that commercially sensitive or confidential information has been removed before publication.
Provided the rated entity does not supply extra information warranting significant changes to the analysis in the Credit Rating Report and does not appeal the ratings, the report is finalised and a Credit Rating Announcement is prepared.
Credit ratings are monitored by CI on an on-going basis and the Credit Rating Report is updated at least once every 12 months, unless the Rating Agreement specifies otherwise. Management meetings are typically held as part of the annual review process. The ratings and rating outlook may, however, be revised at any time if CI becomes aware of developments or events that could have a material impact on the entity’s credit quality.
Public and Private Ratings
Entities that request a credit rating may choose to either make the rating public or to keep it private. CI will accede to such a request provided that it does not apply to an existing rating which is in the public domain (ie it is a first-time rating) and the rated entity formally agrees not to publicly disclose the credit rating.
In the case of private ratings, CI does not prepare a Credit Rating Announcement or publish the credit ratings on its website. Private ratings may be point-in-time or monitored. An entity may subsequently request that a private rating be converted into a public rating, in which case a Credit Rating Announcement will be prepared.
The process for assigning first-time ratings typically takes 8 to 12 weeks from receipt of historical financial data. The pace of completion often depends on the speed with which the prospective rated entity provides any additional information requested by the primary analyst and on the complexity of the entity.