A rating report might be prepared for an individual or for a company. A credit report for an individual is a detailed breakdown of an individual’s credit history prepared by a credit bureau. Credit bureaus collect financial information about individuals and create credit reports based on that information for lenders. Reporting companies collect information about consumers’ personal financial details and their bill-paying habits to create a unique credit report, including personal information such as the individual’s current and previous addresses, numbers and employment history, credit history summary such as the number and type of bank or credit card accounts that are past due or in good standing, and detailed account information related to high balances, credit limits and the date accounts were opened. A rating report for a company might be much more comprehensive, since it covers information on rating drivers, recent developments and scenarios, performance update, key credit factors, commentary on various factors concerning the company, business risk profile and financial risk profile.
In its 2021 banking study, the independent Swiss credit research institute Independent Credit View AG (I-CV) examined the global banking sector.
A universe of 47 credit institutions in 16 countries – including the D-A-CH region – was scrutinized using a comprehensive analysis with a stress test. The good news is that the major international banks are doing better than feared. “They are not part of the problem this time”, writes I-CV.
Despite the pandemic and global recession, major international banks are generally in good shape. Only a few banks have structural problems. “Based on our current bank study, we expect mostly stable to positive developments this year and also in 2022. And this despite the probable rise in problem loan rates. We see a robust basis thanks to the progress made by the banks in terms of sustainable profitability, capital and liquidity – also as a result of stricter regulation. In addition, there is massive support from governments, central banks and banking supervision for households and companies and – ultimately – also the banks. The average I-CV rating level is between A and A- and is thus higher than in the previous five years,” says Christian Fischer, lead author of the I-CV banking study.
The I-CV Banking Study 2021 takes numerous questions into account: How much does the pandemic affect the credit profiles of banks? What are the long-term challenges for the business models of banks in terms of structural change? How long will the low interest rate environment last and how much does the long-term refinancing program of the European Central Bank help to counter the pressure on margins and to stimulate lending? And where can problem areas (black holes) open up in the banks’ balance sheets?
“With our extensive stress test, we have taken these questions and many other facts into account in order to provide bond investors with important guidance for their investment decisions. 29 European and 11 North American banks as well as 7 credit institutions from Australia and Singapore were put through their paces,” says Fischer.
North America & Asia versus Western and Southern Europe: the gap is widening
Regarding the results of the study, Fischer says: “The iceberg problem in the banking sector is the tail risks in credit and trading books as well as an appropriate identification and control of risks (the Archegos bankruptcy is an example). In general, 2020 and Q1-2021 surprised both positively and negatively. Despite solid financial figures, the business models of individual banks speak against a more positive view of creditworthiness. The macroeconomic situation and corona-endangered industries remain the most important risks in the short term. If there are no major geopolitical crises and market dislocations, the gap between banks from North America and the Asia-Pacific region on the one hand and banks from Western and Southern Europe on the other is likely to widen in the medium term. The latter suffer from overcapacity and often do not earn their imputed capital costs. In investment banking, European banks are struggling to keep up with US investment banks only in sub-segments, but they are in danger of losing ground. Spreads and yields for bonds from all layers of the capital structure of the banks (senior preferred, senior non-preferred, tier 2, additional tier 1) as well as the risk differentiation are often insufficient”.
In conclusion, banking expert Fischer says: “We recommend bonds along the entire balance sheet structure of defensive banks with good credit ratings. While senior preferred instruments are acceptable for all banks in the study, we recommend senior non-preferred and subordinated bonds only for selective issuers. We would focus on new issues (premium) as well as terms (first call dates) in the shorter range. In addition to the above-mentioned banks from North America and the Asia-Pacific region, Northern European credit institutions are among the banks with the highest creditworthiness and therefore security-conscious investors should pay special attention to them. “
Møller Mobility thrives in symbiosis with Volkswagen.
Nordic Credit Rating (NCR) assigned a ‘BBB-‘ (that reads triple B minus) long-term issuer rating to Norway-based car importer and retailer Møller Mobility Group AS (Møller Mobility). The rating agency’s outlook for this credit rating is stable. At the same time NCR assigned an ‘N-1+’ (that reads N One plus) short-term issuer rating. NCR has also assigned ‘BBB-‘ (triple B minus) issue ratings to Møller Mobility’s senior unsecured bonds.
Nordic Credit Rating was established as a financial infrastructure company by 30 Nordic banks and institutions to lower the threshold for issuers to obtain and maintain a credit rating. Being registered with European Securities Markets Authority as a credit rating agency, their research is produced by an analytical team and is based on local expertise.
“The long-term rating reflects the company’s strong position in its core market. It is further supported by the company’s close relationship over almost 75 years with car manufacturer Volkswagen AG, which provides scale and diversification through a range of brands, and the joint venture Volkswagen Møller Car Finance. The rating is also underpinned by the company’s moderate financial leverage and strong cash position, supported by unutilised credit facilities”, is the rating agency’s rationale for this rating.
According to NCR, the rating is constrained by the company’s operating environment. It is a cyclical industry undergoing rapid change through the development of low-emissions vehicles, which could potentially affect the industry’s structure. “The company’s large off-balance-sheet repurchase portfolio, with a maturity profile of less than two years, could materially affect the company’s short-term liquidity and potentially result in losses should the market experience rapid deterioration”, warns NCR.
“The stable outlook reflects our expectation that Møller Mobility will maintain its market-leading position in its geographical segments and benefit from an economic recovery on the back of increased vaccination against COVID-19 and the easing of pandemic-related restrictions by mid-2021 in its core markets. It also reflects our expectation that Volkswagen will continue to deliver popular models of cars in a timely matter”, says NCR.
The rating agency sets the following standards for improving the rating (see also the Full Rating Report:
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The text of publications must meet strict requirements.
The European Securities and Markets Authority considers that a credit rating or rating outlook should be accompanied by a press release or report. The press release or report should explain the key elements underlying the credit rating or rating outlook.
Where it would be disproportionate in length to include the full underlying detail of the above elements in the press release or report accompanying the credit rating or rating outlook, the European Securities and Markets Authority expects that credit rating agencies make clear and prominent reference where this underlying detail can be directly and easily accessed through direct web-link. Notwithstanding this, the Authority considers that the inclusion of the core of the above elements in the press release or report is necessary and proportionate to the overall length of the press release or report.
“The current Corona development and the associated lockdowns were a real blessing for industrial real estate in 2020”, writes Peter Salostowitz, Managing Director of Industrialport GmbH & Co. KG and lecturer for PropTech and Entrepreneurship at the Fresenius University, the test winner “Private Business Universities “.
“Hardly a week went by in 2020,” says Peter Salostowitz, “without a new large investor, developer or portfolio that has been sold. An end to this development is not yet in sight, as the financial resources from the other usage classes are now largely flowing in industrial properties.”
The decline of the previous supply structure in retail will require new supply channels, predict the experts from Idstein: “Whether these will compensate for the already experienced decline in demand on the part of the key industry in the future and whether the population’s increased financial fear will be an incentive to buy on the Internet is an exciting question.”
Regardless of these future questions, Industrialport emphasizes: “In any case, in the year of the COVID-19 pandemic, the market for industrial real estate has shown itself to be significantly more resilient than other asset markets.” This is shown by the current report “Market in Minutes” industrial real estate market in Germany from Savills and IndustrialPort.
The IndustrialBundle market report from Industrialport is getting a big brother – the IndustrialKIT: “This modular market report enables you to evaluate our IWIP index data set on a daily basis. The evaluation can be created in different designs and in DE / EN. The previous IndustrialBundle elements can be combined with the new evaluation options. Of course, rental developments at the location can also be displayed. For a better classification, we also provide you with the value-driving parameters of the comparison cases that were included in the rent calculation.”
The Artprice Report, covering 20 years of Contemporary Art auction history, is a basis for understanding why evidence-based “art rating” is more important and urgent today than ever before. The complexity and global nature of the art market has never been greater.
In the last two decades, decisive impetus came from China. “In 20 years,” writes Thierry Ehrmann, CEO and founder of Artprice by Artmarket.com, “the growth of Chinese turnover in the Contemporary Art segment has been phenomenal: multiplied by 65. Including Hong Kong (10%), China generated 33% ($659 million) of the global market in 2019) versus 35% ($695 million) for the United States.”
Thierry Ehrmann sees a multitude of sociological, geopolitical and historical factors, all of which contributed to the rapid rise of Contemporary Art in the global Art Market: “A marginal segment until the end of the 1990s, Contemporary Art now accounts for 15% of global Fine Art auction turnover, and is now its primary growth driver, having increased +2,100% over 20 years.”
Undergoing profound structural changes, with evermore artists (from 5,400 artists to nearly 32,000 today) and evermore artworks (from 12,000 lots offered to 123,000) the 2000 to 2019 numbers show an expansion also geographically, from 39 to 64 countries active in auctions.
“One of the primary factors in its growth was the relatively sudden accession of Chinese buyers to the market, whose arrival also fundamentally transformed it. With the explosion of the Chinese economy, wealthy entrepreneurs began taking an interest in art collecting, while others started buying artworks to diversify their investments.”
The increasing resemblance of the art market to the capital market leads to calls for agencies that – similar to rating agencies like S&P Global or Moody’s on the capital markets – provide investors with market data and data on risks as reliable data providers and opinion leaders.
“The emergence in China of an ‘art business’ sector was both rapid and impressive,” says the Artprice Report, “and it included the appearance of specialized art investment funds. Mimicking stock market practices, ‘shares’ in works were offered with a view to making significant capital gains, quickly if possible.”
“Meanwhile, China began to play a much more active role in the global market. Driven by frenetic economic growth,” goes the simple causality, “it became the new counterbalance to the United States (which it overtook for the first time in 2010). The Chinese eldorado became more and more attractive to international investors, including the world’s leading auction operator, Christie’s, which decided to focus its sales on Shanghai.”
China not only has an impact on market conditions, but also on Contemporary Art itself. In 2019, Jeff Koons’ status of world’s most expensive living artist was reconfirmed thanks to a sculpture which sold for $91 million. The object of the new record was “兔子” (Rabbit, 1986) – considered the most iconic of his works and, by extension, one of the most iconic works in the entire canon of Contemporary Art.
Art rating criteria need to be reconsidered. As the Artprice Report shows, the top positions of the internationally most sought-after artists are taken by the Chinese. This fact shatters, for example, the image of the People’s Republic of China that is widespread in the West as a hardly democratic state with restricted freedom of artistic expression. These restrictions should theoretically have a negative effect on ratings. According to evidence provided, free market conditions in China mobilized more capital and more artistic talent in such a short time than any other country in the world. The economically liberal working environment for cutting-edge artists in China seems to be more inspiring than for their peers in highly state-subsidized art sectors in the West. However, the relevance and siginificance of rating factors and the relationships with other rating criteria require further research.
Companies such as Artprice.com (changing its name to Artmarket.com) and Artnet.com are benefiting from these developments. For the latter, listed company, the share price has more than doubled in the last six months alone.
The financial reports of medium-sized bond issuers in Germany published in 2020 were evaluated and analyzed by URA Research. The URA ratings for 7 bonds were confirmed. According to the report from Munich, the assessment has improved for 1 bond and deteriorated for 10 bonds.
The 3rd bond from Karlsberg Brauerei GmbH and the 6th bond from Neue ZWL Zahnradwerk Leipzig GmbH were newly included in the URA monitoring, reports Jens Höhl, Managing Director of URA Research GmbH.
URA Research notices the development of net financial debt in the observed companies. URA Research defines net financial debt as financial debt minus liquidity. “After all, half of the 13 issuers observed who published interim reports as of September 30, 2020 or at least June 30, 2020 were able to reduce their net financial debt or maintain their existing net liquidity.”
According to URA Research, in 2020, almost half of the issuers were also able to achieve a positive free cash flow so far. URA Research defines free cash flow as the inflow of funds from ongoing business including net interest income minus investment balance.
Missing inflows of funds due to the Corona-related slump in sales could therefore be at least partially offset by cost savings such as short-time work or the suspension of temporary work, by releasing funds in working capital and lower investments. This also fits in with the fact that only a few issuers use government loans. URA Research has no other findings on this.
The “URA stress test” for 45 companies monitored by URA Research shows a similar picture: here, too, almost half had a green light in this sense that it is estimated that the liquidity will last longer than 720 days (ie 2 years) after a 12-month sales decline of 25%. With a 50% drop in sales, it was still a good 15% of the companies.
How does rating repair work in practice? The following is an example. A full rating repair needs even more than shown here, but this real example of a real company gives a first impression of what it’s all about. Rating repair differs considerably between different size classes of companies, type of organization, legal form, industry, etc. The following is an example of a consulting company that specializes in advising hotels.
The company uses the opportunities to work together in teams of freelancers and employees of the customers. Computers, data and software are the company’s most important assets that can be accounted for. The legal form of a GmbH is used to limit liability from business activities. It is therefore in the case of this consultancy not a function of this legal form to accumulate capital. Despite successful business activity, the balance sheet total is therefore low.
The example looks at the credit report from an international credit reporting agency for a German company. The report cannot be compared to an analysis by a Recognized Credit Rating Agency. However, information like the one shown here helps many suppliers, customers and other business partners as well as authorities before they decide on a business relationship. Wrong information can therefore have fatal consequences.
Every decision maker takes their first look at the summary. The company shown here is doing very well. This is evident from the excellent Credit Index, Risk Score, International Score and Probability of Default. This good assessment does not rule out that the report is incorrect. In particular, minor errors can be found which, although they do not significantly change the overall assessment, nevertheless create a false image of the company. Therefore, all details must also be checked. Examples of this are shown below. The consequence of the analysis can be to contact the credit reporting agency and ask for a correction of the data.
Key Financials and Payment Details Summary
“Days Beyong Terms” (DBT) are the average days beyond terms weighted by the age and amount of invoices. The calculation uses all trade lines received from suppliers of the Trade Payment Programme. The credit reporting agency points at the fact, that this is not a statistic based on representative and complete data. Available trade lines might contain occasional instances which are not representative. It is possible that companies with a high Days Beyond Terms pay within terms on other occasions.In the case of this consulting firm, the sales from suppliers are insignificant. Accordingly, no peculiarities in payment behavior are reported.
Auditor Detials, Business Purpose and Additional Industry Codes
The company shown here has been around for more than a decade. Over the years, the purpose of the company may have changed or the focus of its business activities may have shifted. If so, the consequences for the assessment should be examined. For example, it makes a big difference whether a company offers hotel advice or operates a hotel itself. Hotels have to expect massive losses due to the corona crisis. The industry will have to be assessed accordingly critically.The consultant here in the example is not directly affected by this development, so it remains to be seen whether he might even benefit from the need for restructuring in the hotel industry.
Score Summary
The Score Summary shows the Credit Worthiness “very low risk profile” and an Assessment: “The default risk is reckoned to be very low. The business connection can be approved.” With such a good credit rating, the only question for the assessed company is how the good credit assessment can be secured for the future.
Credit Limit and Contract Limit
The recommended credit limit is calculated using a formula that analyses information from a company’s financial accounts and payment record. The registered company credit limit is the credit reporting agency’s recommendation of the total amount of credit that should be outstanding at any one time. A Contract Limit is the suggested value of a contract that a company can handle. It is an assessment of the subject company and its suitability to carry out a specific contract. It is mainly based on value of the sales that a company can generate. The values shown here are very low, as if the consulting company could only place orders up to € 1k without collateral. Ratingrepair can help to raise the limit here. Various instruments are available for this, which require further advice in order to implement them.
Directors / Shareholders Summary and Current Directors
Credit bureaus get their information from public registers. When the consulting company was founded, three managing directors were appointed. Of these, however, two left the management after just a few years. In the meantime, the management is carried out solely by the majority shareholder. There is a need for correction here. Anyone who continues to research these people would potentially draw misleading conclusions from the information obtained.
Shareholders
As can be seen here, the shareholders were correctly recorded by the credit reporting agency when the company was founded. In the present case, the changes in the shareholder structure were not taken into account.In the meantime, the shareholders had changed. Two shareholders sold their shares. A new partner joined. However, this is not reported here. Since there are no longer any relationships with the old shareholders, this information should be corrected.
Beneficial Ownership
For certain businesses and industries the Anti-Money-Laundering law (Geldwäschegesetz – GwG) requires to check if the trade partner has a beneficial owner. This identification of the beneficial owner shall prevent straw man transactions and identify the natural person in whom the economic interest is being made. At legal persons or companies a beneficial owner is every person who holds more than 25% of the voting rights, more than 25% of the capital share or more than 25% of the assets. Violations against the GwG can be fined up to 100,000 Euro per violation.
There is also a wrong statement here. Incorrect information about a beneficial owner can be severely punished, depending on the circumstances. In our example, the beneficial owner is now the German managing director / majority shareholder and no longer Swiss, as can be seen here.
Assets and Liabilities
The balance sheet shown by the credit bureau shows typical characteristics of a small company: The balance sheet items fluctuate greatly in their amount, since even absolutely small amounts lead to relatively large changes.
Debt Ratio
Find above a comparison of the company based on the industry code (primary) with other companies from the same industry. The analysis of the credit reporting agency has been based on the industry code 70 – Activities of head offices; management consultancy activities. The Debt Ratio measures the ratio between debts and equity of a company. Here, too, the strong fluctuations typical of small companies can be seen, which cannot be compared with those of large companies.
Cash Ratio
The Cash Ratio shows the ratio between liquid assets and short-term debts. The consulting company only delivered the legally required minimum balance sheet to the German Federal Gazette. This does not require a breakdown of the current assets. The liquid assets can therefore not be determined from the publicly available data.These items are accordingly noted in the credit report with dashes. Depending on the situation, it may be advisable to voluntarily break down these items in the annual financial statements submitted to the German Federal Gazette.
Revenue
The revenues indicate the value of goods and services a company sold within it’s ordinary business activity during a trading period. An income statement does not necessarily have to be submitted to the Federal Gazette if certain threshold values for company size are not exceeded. Accordingly, only dashes are used here instead of concrete numbers. Small corporations are those that do not exceed at least two of the three following criteria (1) 6,000,000 € balance sheet total; (2) 12,000,000 € in sales in the twelve months prior to the closing date; (3) an annual average of fifty employees. Micro corporations are small corporations that do not exceed at least two of the three following criteria: (1) 350,000 € balance sheet total; (2) 700,000 € in sales in the twelve months prior to the reporting date; (3) an annual average of ten employees. The disclosure requirements are graded accordingly.
Net Profit Ratio
Net Profit Ratio measures the ratio between operational result and revenue. So it indicates how much the company actually earned with its achieved revenues. For the same reasons of the limited disclosure, the information on the net profit ratio is also not meaningful.In the present example, the credit reporting agency has not made any estimate of these values.
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In summary, there is a need for rating repair here. Errors on the credit report can lower the credit score. Unfortunately, the same is true for correct information. If facts are rather unfavorable that could be published voluntarily in the Federal Gazette or to the credit bureau, this can lead to a worse Credit Index, Risk Score and International Score and an estimate of a higher Probability of Default.
For certain businesses and industries the required check according to the Anti-Money-Laundering law (Geldwäschegesetz – GwG) could not be assisted by the data provided in the credit report. The reported trade partner is not the beneficial owner, since partners had changed.
In Germany, very tenth inhabitant will be at least 80 years old in 2060. The German care industry will soon face a very high investment requirement. By 2060, more than 5,800 additional full-time nursing home places might be needed each year.
The 65-year-olds and older people are steadily increasing. Immigration and a rising birth rate can not prevent the aging of society. In 2060, just under 23.6 million people will be over 65 years old. This represents an increase of 32 percent compared to 2018.
According to nursing statistics, in 2017, 92.5 percent of full-time care-dependent people in care were aged 65 and over, making them the main demand group. The demand for full-time care of 65-year-olds and older people amounted to 4.27 percent in Germany, reaching a new record high.
In a conservative approach, which requires constant proportions of the outpatient and inpatient sector and a constant nursing rate, in the year 2060 around 1 million people in need of care would need a full-time home. This represents an increase of more than 33 percent compared to 2017. With an average size of 80 places per home, around 74 fully residential nursing homes would have to be built annually by 2060. From 2011 to 2017, the nursing rate has increased. If this trend continues, by 2060 there would even be a significantly higher demand for full-time care places.
This does not take account of any federal building regulations, which can once again create an immense additional need for new construction, since, for example, legally required single occupancy rates cause a loss of care places. In addition, due to ramshackle building structures, the increasing demands and the elimination of multiple expiring grandfathering additional buildings are required.
