No matter where you work, your organisation’s credit rating is fundamental to its financial strength. Driven by major fundamental changes such as regulatory requirements and a decreasing availability of bank lending the need to obtain and consequently manage credit ratings is likely to grow in the near future. This is true both among lower credit quality and higher quality borrowers.

Credit rating agencies universally evaluate and assess a company’s ability to understand and effectively manage risk relative to capital. Agencies aim to be transparent in their rating evaluations and explicitly outline their rating methodology. Most share a similar criteria structure (balance sheet, operating performance, business profile) but the similarities diminish as you take a closer look across the rating agency landscape to the scope, experience and coverage of each rating firm. In addition, the boundaries between the approaches of different agencies are blurring, as credit rating agencies, for example, are increasingly considering criteria that were previously used only by sustainability rating agencies.

There are a few banks to provide you with dedicated rating advisory support as a one-stop service provider.

With an extensive capital market and rating agency background, a rating advisory team supports you in all ratings considerations, including first-time ratings, rating upgrade/defense, capital structure optimisation and debt capacity analysis.

Only a deep understanding of the analyzed company’s business model and a prudent application of scenario, sensitivity and sector comparison enable reliable assessments and opinions in terms of the company’s debt and credit rating. This also includes advising on and management of the initial rating and continued process and interaction with the rating agencies. Rating advisors should identify critical credit rating levers and advise their clients on the credit rating implications of their envisaged corporate actions and strategic initiatives. As advisors to their customers, house banks have the advantage of having known their customers for many years, so that they can also support them in their relationships with recognized rating agencies.

In some situations, however, it is advisable to involve specialists.

Independent rating advisors differentiate themselves from other firms in the industry by their unconditional independence. Unlike large banks who sometimes advise their clients on rating-related items, independent rating advisors do not offer direct financing nor connect clients with potential investors, which is the reason their audience regards their services as truthfully independent. Understanding the unique perspectives of each rating agency is paramount to managing credit ratings. 

Strategic and operational rating advice plays a key role in increasing financial flexibility needed for transformative steps such as mergers and acquisitions, major investments, cashflow deterioration or share repurchases. A rating from a Recognized Credit Rating Agency facilitates funding access and reduces financing costs especially in times of heightened market volatility and investor uncertainty. While ratings are very common among companies in the United States of America due to their long-established reliance on the capital market, the same does not hold true for their European, Asian and African peers, in-line with their lower rate of capital market funding. In many countries, banks do not have the long-term experience in dealing with rating agencies to be able to give their customers recommendations.

That is why independent and specialized debt and capital advisors may help. They offer an array of financial services covering debt and equity financing, credit ratings, treasury and investor relations. With a relationship focused approach and experience in operations and advisory they can ensure that every one of their clients receives insightful and impartial advice, tailored to deliver the best individual solution and value.

New and evolving criteria, untimely requests for information during and post events, poor or little analyst communication are just a few challenges in today’s complex and uncertain environment that make managing credit ratings increasingly difficult. Furthermore, managing your rating agency relationship(s) is increasingly costly in terms of both time and resources as the risk landscape transforms quickly and rating agencies react.

It is paramount to understand the criteria and procedures from the various rating agencies to aid in the day-to-day and overall management of the relationship and to ensure you are communicating effectively. A team of a rating advisory firm usually assists a large and diverse client base that allows for deep insights into the interpretation of rating criteria. This experience and expertise is a valuable resource for clients to help mitigate the cost and time needed to manage ratings.

Rating Advisory

Check whether the rating advisory team of your choice consists of experienced professionals that has a track record of helping clients effectively and efficiently manage their rating agency relationship. Whether you are seeking a rating for this first time or have a team of personnel dedicated to managing your rating agency relations, your team of rating advisory experts should have unique insights and understanding of rating criteria and its application.

There are numerous specialists who advise publicly and privately rated entities and rating candidate companies, public entities and financial sponsors on crucial credit rating issues by leveraging their credit and rating expertise. Rating advisors provide guidance on all aspects of the internal and external credit rating process. Some employ comprehensive credit rating methodologies as applied by Recognized Credit Rating Agencies reflecting the current credit profile and key credit drivers related to the business risk, financial risk and increasingly Environmental, Social and Governance (ESG) risks of the evaluated entity.

Rating advisory is important not only for corporates, but also for governments and even more so for financial institutions. Whether through shadow ratings, in-depth analyses or automated rating models, rating advisors have the solutions to limit a risk as an investor. Rating advisors support capital markets participants in their relationships with credit rating agencies and assist them with optimizing their credit ratings.

Some rating advisors provide also support for institutional investors in understanding the variety of credit rating methodologies, which often result in different ratings. Support for national supervisory authorities as well as credit rating agency regulators and funds helps them to fulfill their assignment more effectively by examining proactively, whether credit rating agencies comply with the imposed set of analytical requirements.

Is it a good idea to go unprepared for an exam? Whether university examinations, applicant selection, pitches of start-ups, initial public offerings or bond issues – in each one, good preparation pays off. Good preparation is not only for the applicant who wants to get a job, loan or capital or other resources, but also the organization that has to make the assessment. Random results are avoided and misunderstandings are eliminated.

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