Credit Rating ProcessWith Respect to Corporate Debt

S&P

MOODY’S

FITHCHCARE

ICRA

CRISILC

BBB

A+

B+

C

AAABBB-

A+

BB

BBB

Presented to : Prof. Lakhani

Introduction

Corporate Bond

DebentureFixed Deposit etc.

Long Term Instrument Short Term InstrumentCommercial Paper

Certificates of Deposit etc.Inter-corporate Deposits

Business Risk Payment Risk

Corporate Debt :

Types of risk :

Conti.

Role of Credit Rating Agency :

Scanning the company’s projectScan the company’s fundamentalAssigning Rating

Review time to time until maturity

Credit Rating ProcessReceipt of Request :

Analytical team Formation

Obtaining of Information :

Plant visit and meeting with the management :

Presentation of findings :

Communication of Decision :

Dissemination to the public :

Monitoring for possible changes :

CARE’s Corporate Debts Rating Process CLIENT CARE Ratings Agency

RATING AGREEMENT EXECUTED

Submit Information and details schedule Assign Rating Teams

Interacts with rating team, responds to queries and provides additional data necessary for the analysis

Team analyses the information

Periodic Surveillance

Team interacts with clients, bankers, auditors, undertake site visits and analyses data; prepare rating notes

Committee awards rating to clients

Rating letter and rationale issued; rationale issued on website & CAREVIEW

Ratings Accepted ?

Appeal for review of rating (once)

Yes

No

Example of NCD RatingsIssue Open Feb 26, 2015 – Mar 16,

2015

Issue Type Fixed Price Issue NCD

Issue Size 40000 NCD’s of Rs. 1000

Issue Size (Total Value) 400 crore value

Face Value 1000 Per NCD

Minimum Order Quantity 10 NCD

Listing at BSE

CL Finance Limited is non-banking financial services

This company is a part of the Edelweiss Group

NCD Rating

This issue is graded as CRISIL AA and ICRA AA (Stable)

Coupon rate is ranging from 10% to 10.60% depending on the selection of option and giving an effective yield ranging from 10.45% to 10.64%.

METHODOLOGY OF CREDIT RATINGMain factors that are analyzed into detail by the credit rating agencies

1. Business Risk Analysis

2. Financial Analysis

3. Management Evaluation

4. Geographical Analysis

5. Regulatory and Competitive Environment

6. Fundamental Analysis

NATURE OF CREDIT RATING

Rating based on information

Time taken in the Rating Process

Monitoring the already rated issues

Many factors affect rating

ADVANTAGES OF CREDIT RATING TO INVESTORS

Safety Level

Advantages of continuous monitoring

Easy understanding of investment proposal

Wider choice of Investment

Recognition of risk & returns

ADVANTAGES OF CREDIT RATING TO COMPANY

Easy to raise resources

Reduced cost of borrowings

Rating builds-up Image

Recognition to unknown companies

DRAWBACKS OF RATINGS

Static Study

Rating may be biased

Rating under Unfavorable conditions

Difference in rating grades

Non-disclosure of material facts

RATING PARAMETERS OF CREDIT RATING AGENCY

Rating Scale for CRISIL , CARE & ICRA Interpretation

AAA Highest Safety

AA High Safety

A Adequate Safety

BBB Moderate safety

BB Moderate Risk

B High Risk

C Very High Risk

D Default

Rating for Long Term Debt Instruments

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