Posted Date : 15 Oct 2014
MARC published its final methodologies for assessing the business and financial risk profiles of corporates and members of a corporate group today. The rating agency had published for public comment the exposure drafts titled ‘Corporate Credit: Rating Outcomes Grid’ and ‘Group Rating Methodology’ respectively on August 4, 2014 and August 8, 2014. MARC received a number of comments during the comment period which it gratefully acknowledges and has made some non-significant adjustments to the methodologies.
The Rating Outcomes Grid provides greater transparency on the relationship between MARC’s business and financial risk profile assessments for a non-financial corporate and its effect on the rating agency’s overall opinion of the entity’s creditworthiness. Another objective of the methodology is to provide qualitative and financial benchmarks to help assess an entity’s risk profile and convey the rating agency’s expectations pertaining to risk profile characteristics for each rating level. The financial benchmarks in the methodology are derived from aggregate industry numbers and are indicative rather than absolute, consistent with the rating agency’s view that financial benchmarks for the various rating categories should be business risk-adjusted.
The Group Rating Methodology, meanwhile, formalises MARC’s rating approach for members of a corporate group. The principles in this methodology pertaining to the recognition of structural subordination, the differentiation of core subsidiaries from strategic and non-strategic subsidiaries in assessing group support and the assessment of rating drag from a weaker parent and other group entities are consistent with the approach MARC has historically used to assign ratings to members of corporate groups. However, the rating agency’s approach to assessing rating drag from exposure to group entities had previously focused more on observed or tangible effects of such an exposure on the rated entity’s credit profile. The updated approach is expected to support more forward-looking assessments.
Both rating methodologies are effective immediately. Given that both rating methodologies involve the formalisation of rating approaches rather than changes to the existing methodologies, MARC does not anticipate rating changes arising from the finalisation of the aforementioned rating methodologies. The final rating methodologies can be accessed on MARC’s website at Corporate Credit: Rating Outcomes Grid and Group Rating Methodology.
Contact: Milly Leong, +603-2082 2288/ milly@marc.com.my.
