Posted Date : 25 Feb 2014

MARC has published for comment an exposure draft which outlines the rating agency’s approach to equity treatment and notching for corporate subordinated debt and hybrid securities.

The exposure draft aims to identify concepts and principles that are applicable to assigning ratings to all types of subordinated and hybrid securities issued by corporates to improve transparency and clarity in the rating process. Key highlights of the methodology include:

  • Application of a debt-equity continuum consisting of five classes from Class A to Class E. Class A represents 100% debt, Class B 75% debt and 25% equity, Class C 50% debt and 50% equity, Class D 25% debt and 75% equity, and Class E 100% equity;
  • Detailed guidance on principles for assigning equity credit to a security; and
  • MARC’s approach to notching subordinated and hybrid debt ratings down from a senior debt rating.

MARC welcomes comments on any aspect of the draft methodology during the comment period and will consider all comments received in writing by March 27, 2014. Comments on the exposure draft should be sent to ratingmethodology@marc.com.my. All responses will be regarded as on the public record unless confidentiality is requested by the commentator. MARC will finalise the rating methodology following a review of comments received during the consultation period.

This is the first time MARC is publishing an exposure draft for a new rating methodology. MARC’s decision to incorporate the publication of an exposure draft as a mandatory step in the rating agency’s due process for developing new methodology going forward reflects the adoption of current best practices among credit rating agencies. To encourage transparency and dialogue, MARC intends to use exposure drafts as the primary vehicle for consulting the public on new rating methodologies or significant revisions to existing rating methodologies during a one-month public consultation period. Thereafter, MARC will publish the final methodology and post all comments received (other than unattributed or anonymous comments) in their entirety with the rating agency’s responses on its website.

Milly Leong, +603-2082 2288/milly@marc.com.my.