Caribbean Information & Credit Rating Services Limited

Introduction

to

CariCRIS

2

Presentation Structure

Why CariCRIS

CariCRIS Rating Scheme

CariCRIS Rating Methodologies

CariCRIS Rating Process

CariCRIS Governance Structure

3

Why CariCRIS

• Caribbean– Small sized economies limiting local bond market development– Credit research in public domain relatively scarce

– Sizeable regional economy – Increasing evidence of cross border financing – Conducive business & regulatory environment

• The Caribbean needs an integrated, regional debt market

• A regional credit rating services company is an essential ingredient

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Rating agencies have provided opinions on creditworthiness of bond issuers for over 100 years.

Provision of such credit information lubricates the working of bond markets.

Impact of credit ratings on securities markets include: • Issuer’s cost of capital• Issuer's access to capital• Structure of financial transactions• Ability of fiduciaries and others to invest in particular

investments• Increased transparency and market pressure toward

improved corporate governance on the part of issuers

Role of Rating Agencies

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Credit Rating - some fundamentals

• A credit rating is a current opinion on the relative creditworthiness of debt

• Ratings are: – Always relative – Within a defined frame of reference

• Ratings Frames of Reference can be:– Global– National– Regional

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CariCRIS –Rating Products

• Regional Scale Ratings– Opinion on creditworthiness relative to other

entities in a defined Caribbean region• Foreign currency ratings• Local currency ratings

• National Scale Ratings– Opinion on creditworthiness relative to other

entities within a specific nation• Local currency ratings

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Illustration

You want to compare … Use …

ABC (T&T) LtdABC (T&T) Ltd

US$

XYZ (J’ca) LtdXYZ (J’ca) Ltd

US$

Regional ScaleForeign Currency

ABC (T&T) LtdABC (T&T) Ltd

TT$

XYZ (J’ca) LtdXYZ (J’ca) Ltd

J$Regional ScaleLocal Currency

ABC (T&T) LtdABC (T&T) Ltd

TT$

PQR (T&T) LtdPQR (T&T) Ltd

TT$National ScaleLocal Currency

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CariCRIS Rating Scale

Long Term Rating Scale

Regional National Definition

CariAAA **AAA Highest

CariAA (+/-) **AA (+/-) High

CariA (+/-) **A (+/-) Above Average

CariBBB (+/-) **BBB (+/-) Average

CariBB (+/-) **BB (+/-) Below Average

CariB (+/-) **B (+/-) Weak

CariC(+/-) **C(+/-) Poor

CariD **D Default

Short Term Rating Scale

Regional National Definition

CariP1 / P1+ **P1 / P1+ Highest

CariP2 / P2+ **P2 / P2+ High

CariP3 / P3+ **P3 / P3+ Average

CariP4 **P4 Below Average

CariP5 **P5 Default

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What is a credit rating ?

What a rating is: A current opinion on the relative creditworthiness of

debt An issue specific evaluation Aimed at differentiating credit quality A response to the market’s demand for information

What a rating is not: Not an audit of the issuing company Not a one time assessment of creditworthiness of the issuer Not a general purpose certification of goodness of a

company Not a recommendation to buy, hold or sell the rated security

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What can be rated?

Debt/Notional debt issued by:

– Sovereigns– Manufacturing/ Service

companies – Statutory Bodies/Public

Sector Companies– Financial institutions & Banks– Finance Companies– Credit Unions– Holding Companies– Insurance Companies– Mutual Funds

Such as:– Bonds– Bank Deposits– Commercial Paper– Term Loans– Preference shares– Secured debt– Unsecured debt– Mortgage backed

securities– Asset backed securities– Structured obligations

CariCRIS will primarily assign issue specific ratings.

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Investors Eases risk identification and diversification Risk based pricing of Investments Greater depth of research, being locally based

Issuers A proactive step towards transparency An independent, unbiased assessment Enhances credibility & acceptability Increases access to funding Encourages financial discipline

Regulatory authorities Investor protection Market discipline

Intermediaries Fixing coupon rates A second opinion

Benefits of a CariCRIS rating

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CariCRIS Rating Process Borrower/ Issuer

Requests for a RatingAssigns analytical team,

conducts preliminary research

Document PreparationCollection of information from

company

Management Meetings

Rating Committee assigns rating

Communication/Discussion of rating with issuers by Rating

Team

Acceptance & Dissemination of rating/ publication

Surveillance & Annual Review

Rating Agency

Governance Structure

OPERATIONS AUDIT

&PROCESSQUALITY CONTROL

CODE OF CONDUCT

& BEST PRACTICES

TRANSPARENCYOF

CRITERIA

Boardof

Directors

Shareholders

RatingCommittee

Management

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Central Banks– Central Bank of T&T– Central Bank of Barbados– Eastern Caribbean Central Bank

Commercial Banks– Capital & Credit Merchant Bank– Citibank T&T– First Caribbean International Bank– First Citizens Bank– Inter Commercial Bank– NCB Jamaica– RBTT Bank– Republic Bank– Scotiabank, T&T

Mutual Funds/Unit Trust– Fortress Fund, Barbados– Unit Trust Corporation, T&T

Insurance/Conglomerates – CL Financial– Guardian Holdings Limited– National Insurance Board, T&T– New India Assurance– Sagicor Life Inc

Multilateral Agencies– Caribbean Development Bank– Inter-American Development

Bank*

Brokerage Houses– CMMB– JMMB

Stock exchange– T&T Stock Exchange

Technical Consultant– CRISIL

* Formalities in process

Participation By All Key Market Players

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Subscribers by Territory

Trinidad38%

Jamaica24%

International17%

Barbados14%

Regional4%

OECS3%

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Subscribers by Type of Institution

Insurance/Conglomerate

9%

Multilateral13%

Stock Exchange

1%Mutual Funds

6%

Technical Consultant

8%

Brokerage9%

Central Bank13%

Commercial Bank41%

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• Fourth largest rating agency in the world with 17 years in market leadership position

• Strong relationship with Standard & Poor’s (S&P)

• Approx. US$ 100 billion of debt rated so far

• Helped set-up rating agencies in Israeli and Malaysia

Technical Assistance from CRISIL

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• Core Values– Integrity – Independence– Analytical rigour– Team work

• Processes– Interactive rating process– Team & Committee approach– Local knowledge combined with global best

practices– Strict confidentiality in handling client information

Our Values & Processes

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A Catalyst

A rating agency’s role in a developing economy is much wider than in a developed one

CariCRISintends to play an important role in strengthening debt markets

in the Caribbean

Providing independent and credible

benchmarking and valuation tools through credit ratings and risk

management tools

Engaging in policy level work with local governments, multilateral

agencies, central banks, SEC, etc. in areas like infrastructure policy

formulation, financial sector regulation

Imparting credit risk and risk management training

to the various constituents in the market

place

THANK YOU

Caribbean Information & Credit Rating Services Limited

info@caricris.com / www.caricris.comTel: (868) 627-8879Fax: (868) 625-8871