LOAN AND RECOVERY RATINGS:BENCHMARKS FOR NEW DEBT

STANDARD & POOR’S RATINGS SERVICES

OUR PERSPECTIVE ON YOUR LOANSInsight into your company’s creditworthiness can help you in many situations. You may be leveraged and linked to a private equity house, emerging from a restructuring or fresh from an IPO. In these instances and more, a loan rating and its associated recovery rating give you and your potential investors an independent, third-party view of your loans’ relative creditworthiness.

Loan ratings benefits

Breadth

Our credit analysts rate loan packages which often include term loans, revolving credits, capex facilities, second lien and mezzanine. Whether you are considering a stand-alone term loan or revolver, or those based on more complex structures, our ratings can enable your lenders to look at the relative credit quality of the proposed debt.

Price and liquidity

Certain lenders will be able to participate in a loan only if it carries a rating, so a loan rating can expand your universe of potential lenders. Having a loan rating could also help to create higher demand and potentially more favourable pricing.

Foundation for next steps

For the investor community, loan ratings illustrate the relative creditworthiness of your debt. For example, your company may be launching a loan in the near future, but planning to issue a bond in the medium term as your next step into the capital markets. As a company moves through different stages of its development, a loan rating on its current debt provides lenders with a widely recognised benchmark of where the company’s loans sit on the credit rating spectrum and creates a basis for further debt issuance.

Insight for substitute lenders

Changing regulations and increasing capital requirements can change attitudes. During the life of a loan, a lender may no longer wish to lend to a particular industry or geographic region. Leveraged loan documentation will typically contain a “yank the bank” clause, allowing a borrower to substitute one lender for another. In this case, a loan rating could help a borrower approach a new lender, by giving the new lender a clearer view of the loan and its credit quality. For non-leveraged deals, too, when CFOs/finance directors want to actively manage their groups of relationship banks, loan ratings can help encourage new lenders to become part of these groups.

Aiding the engagement process

When speaking with a new lender to obtain funding, your first contact may be with a relationship manager, fund manager or product specialist. Behind the “front office,” the lender’s team may include a credit committee or portfolio/capital allocation committee. Whilst these teams may conduct their own reviews of your creditworthiness, they may find it valuable to know your current loan rating, as it presents an independent perspective and allows for comparisons with their own credit scoring.

More than 2,000

borrowers globally…

…with an outstanding amount of more than

EUR800 billion

LOAN AND RECOVERY RATINGS: BENCHMARKS FOR NEW DEBT

Speed to market

Since the financial crisis of 2007-2008, we have seen markets fluctuating in shorter and sharper cycles. Add on increased geopolitical tensions plus a loan market moving closer to the bond markets, and the result is a challenging environment for borrowers. In our view, companies that can give greater visibility into their financial condition may be able to move more quickly when markets become more favourable after a slowdown. A loan rating may give a company that visibility, enabling it to enter a recovering market earlier than if its loans were unrated.

Price and your yield curve

Your company may have outstanding loans and bonds of varying maturities that have varying interest rates. A new loan rating can be another useful reference point on your yield curve of rated issuance, and a means of comparison when looking to price your next deal.

Recovery indicators

For non-investment-grade deals in many jurisdictions, in conjunction with the loan rating we also include a recovery rating, which speaks to expected recovery in the event of default. Based on a numeric scale of 1+ to 6, the recovery rating is a useful measure for lenders.

Our experience

Since introducing loan ratings in EMEA in 1996, we have rated a wide variety of loans to meet the needs of a broad range of borrowers and purposes, from banks to manufacturing companies, project finance to leveraged loans. Beyond providing loan ratings, we encourage an open dialogue with our clients. We would welcome the opportunity to speak with you.

Talk to usTo learn more, please contact Chris Porter, +44 (0) 20 7176 1063 or chris.porter@standardandpoors.com.

> €750m< €750m

Deal Size

WHICH DEALS DO WE RATE?

We expect to rate all of our clients’ loans over €750m. We also expect to rate all forms of loan, including term loans, revolving credit, capex facilities, second lien and mezzanine.

If the loan is below €750m, we expect to rate it in any of the following circumstances:

• There are multiple loans secured by common collateral or security.

• The loan agreement refers to a credit rating.

• The loan is a significant part of the borrower’s capital structure (15% or more of a borrowers’ debt).

• There is a single loan document covering individual loans that together total €750m or more.

Also, if the total amount of rated debt is below €750m, the loan rating can be private, to be shared only at the client’s discretion with up to 75 third parties.

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