Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
7 Cards in this Set
- Front
- Back
|
What is a credit rating |
Opinion of creditworthineds of a particular debt issuer or financial obligation. Is a measure of both risk of default and the loss arising from the default Strong rating lowers the spread above the risk-free rate |
|
|
Benefits of obtaining a credit rating? |
Broadens organisational access to capital markets but significant time and money is required in securing and maintaining a rating Indeoendent and objective 'quality stamp' Allows benchmarking Some investors are only allowed to investment is certain graded issues Improves overall 'status' Basel III implications for banks |
|
|
Costs of Ratings |
Significant Fees - upfront and annual Time with senior management have to maintain a number of models and reports Dangerous ratings triggers Difficult to give up Can lower strategic and operational flexibility |
|
|
Different Types of Ratings |
Public ratings - Intended for general publication into capital markets for issuer or individual rating ST debt obligations - e.g commercial paper LT debt obligations - e.g. Bonds Private ratings - used by issuer rather than public Unofficial ratings - Less formal assessments like the ones banks do |
|
|
Ratings Process |
1) Appoint a ratings agency - Agency appoints team of analysts nd lead analyst who will have experience of industry sector -Before formal meeting company prepares a number of documents -Meeting with senior management - discuss market segments, financial policies and performance goals, ditinctive accounting policies, and decision to use them. Management forecasts -After the meeting analyst will make projection and assessments, lead analyst makes presentation to internal committee who consider and decide on rating with a hsort period to challenge
2) monitoring the rating - Usually be same lead analyst, requires all info sent to SH and regular meetings with management
3) Developing relationships with agencies - Can management be trusted to achieve objectivds. T will learn methodology and imoact of credit ratings |
|
|
Docuements required for Credit Rating |
5 year audited statements unaudited interim statements narrative description of operations lstest firecasts snd assumptions capex plans copies of legal documents other relevant materials |
|
|
Ratings Factors |
Country risk factir Industry trends - vulnerability to cycles, global commodity pricing, cost drivers, barrier to entry national political sn dregulatory environment monetary policy anf fx rates management quality and attitude towards risk operating and comoetitive positions Financial position and sources of liqudiity - ratios, back up lines Company structure, priority of claim Special event risk - M&A, restructuring Rating grids |
