Credit Rating - Bank Loan Rating

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Focus Financial Services - Credit Rating Advisory

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  • 1. CREDIT RATING Bank Loan Rating Focus Financial Consultancy
  • 2. What is Credit Rating ? Focus Financial ConsultancyFocus Financial Consultancy Credit Rating is a forward-looking opinion about credit risk. It express the credit rating agencys opinion about the ability and willingness of an issuer/ Borrower to meet its financial obligations in full and on time. Credit Ratings give investors a rough idea of the risk associated with lending money to the entity being rated. Focus Financial Consultancy
  • 3. What is Credit Rating ? Cont. Credit Ratings - are assigned by rating agencies ( such as ICRA, CRISIL, CARE & Fitch etc.) to companies and debt instruments - are designed to gauge the likelihood that a company will default on its obligations to lenders. Credit Ratings agencies express the opinions by assigning Rating Symbols. Rating Symbols are different for Short Term Funding and Long Term Funding. Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 4. Credit Rating Symbols Long Term Funding Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 5. Benefits of being Rated Entity Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 6. PositivePositive Relationship b/w Rating Grades & Cost ofb/w Rating Grades & Cost of Bank BorrowingsBank Borrowings New Capital Adequacy framework allow commercial banks to allocate capital in relation to the credit risk embedded in their exposures. Focus Financial ConsultancyFocus Financial Consultancy Risk Weight age is 150% for the rating below investment grade i.e below BBB and 100% for unrated companies Focus Financial Consultancy
  • 7. Positive Relationship b/w Rating Grades & Cost of Bank Borrowings Any decrease or increase in such capital allocation could translate into substantial savings/ additional costs for banks. Banks are expected to share the savings achieved through lower capital allocation with investment-grade issuers; at the same time, given the pressures on profitability, banks may also be expected to pass on the additional costs for unrated exposure to their borrowers. Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 8. Credit Rating Process Focus Financial ConsultancyFocus Financial Consultancy Accepted ? No Yes Focus Financial Consultancy
  • 9. Rating Methodology The methodology for creating a rating involves an analysis of all the factors affecting the creditworthiness of an issuer company: business, financial and industry characteristics, operational efficiency, management quality, competitive position of the issuer and commitment to new projects etc. Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 10. Rating Methodology Business Risk Analysis Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 11. Rating Methodology Financial Risk Analysis Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 12. Rating Methodology Management Evaluation An evaluation of a companys management involves: Understanding organizational and reporting structure Managements experience and track record Level of commitment Track record in debt payment Adequacy of planning and control system Management ability to manager change in external environment i.e regulatory or technological changes etc. Risk appetite as shown in financial leverage Succession plan and team work or one man show Corporate Governance Policy and Principal Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 13. Rating Methodology Project Risk The relative size of the new project compared with the existing operations indicates significance of the project risk in overall rating. Factors considered are: Implementation risk: Time & cost overruns and technology obsolescence risk. Project viability Funding risk in term of capital structure and funding arrangement Focus Financial ConsultancyFocus Financial ConsultancyFocus Financial Consultancy
  • 14. Focus Financial Consultancy Credit Rating Advisory Services
  • 15. Focus Financial Consultancy Focus Financial Consultancy is established by a group of professionals having relevant experience ,exposure and expertise in Financial Domain. Vision To be the most admired Consultancy firm serving clients globally Mission It is our continuous Endeavour to: Help our clients to achieve their financial goal and Contribute to the community through entrepreneurship Work closely with clients to understand their Industry, business process & requirements Do in-depth research and analysis of the industry as well as company related factors. Combine our knowledge and expertise to deliver tailor made solutions
  • 16. Credit Rating Advisory: We assist the company to optimize their credit rating. We work closely with our client to understand their industry and company to present a holistic and complete picture to rating agency which helps them in taking a fare view on the financial strength and credit worthiness of our client. In this line of service, we Advice and support when seeking a first time rating Support for preparation and review of data/ information and presentation for rating agency Develop credit rating defense or upgrade strategy Prepare senior management for rating agency presentation Achieve timely upgrades / forestall downgrades Focus Financial Consultancy
  • 17. FFC - Credit Rating Advisory Services Accepted ? No Yes Our Services: Selection of Credit Rating Agency Based on FFC discussion with Management, Analysis of Data and management expectation It is Important because Knowledge and future prospects of a particular Industry/ Sectors is not same across agencies. Level of open mindedness differ from agency to agency. Right Credit Rating Agency = Higher Probability of getting Optimal Rating Focus Financial Consultancy
  • 18. FFC - Credit Rating Advisory Services Focus Financial ConsultancyFocus Financial Consultancy Accepted ? No Yes Our Services: Preparation of a Comprehensive report covering following areas: Industry and its attractiveness Companys product and its competitive position in market Operating Efficiency Accounting Quality Earnings, Financial Flexibility Management Evaluation Notes on associated and parent company Appropriate Packaging of right & timely data along with commentary = optimal credit rating Focus Financial Consultancy
  • 19. FFC - Credit Rating Advisory Services Focus Financial ConsultancyFocus Financial Consultancy Accepted ? No Yes Our Services: Preparation of key departments presentations for meeting with the help of concern person. Rehearsal of presentation Prepare notes and replies on expected questions to be ask by analyst Concerns person knowledge and appropriate replies will help to Address the doubt of analyst. Create a sense that concern person is aware about market & company and his vision is align to the vision of company. Focus Financial Consultancy
  • 20. FFC - Credit Rating Advisory Services Focus Financial ConsultancyFocus Financial C