Documentary rating agency criteria

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Documentary rating agency criteria
  • Rating agencies and their role
  • Rating agencies—key institutions
  • Why issuers seek to have debt securities rated
  • What do credit ratings consider?
  • What are the documentary criteria for rating agencies?
  • Payment waterfalls—different ratings for different tranches of debt securities
  • Agents in debt capital markets transactions—rating requirements
  • Downgrades and warnings

Documentary rating agency criteria

Rating agencies and their role

Rating agencies provide a credit rating for the issuers of debt securities for public or private use.

Issuers whether they be corporate, sovereign, financial or other entities may themselves be rated. This rating may also be the rating of any debt securities which they issue and are directly responsible for, and which are not subject to any credit enhancements.

An issuer’s debt securities may be rated separately from the issuer where the issuer is a company specially set up for the issuance (a special purpose vehicle (SPV) or where the debt securities benefit from credit enhancements (eg a guarantee) to make them stronger than the standing rating of their issuer.

A credit rating is obtained on application of the issuer to one or more rating agencies.

Rating agencies—key institutions

The international credit ratings’ market is dominated by three major institutions:

  1. S&P, previously Standard & Poor’s

  2. Moody's, and

  3. Fitch Ratings, known as Fitch

Each has its own rating system and methodology.

A credit rating is a shorthand method of assessing the creditworthiness of a debtor and/or its debt securities. It to some extent removes from investors and other parties transacting with a rated entity the need to perform complex credit assessments themselves. A rating may be given on a:

  1. public basis—it will be made available by the rating agency for all to see, together with

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