Issuer's Guide to Moody's Rating Process
This
section provides important information about the Moody's rating process for
issuers or prospective issuers of debt. Our Business Development Team is available
by phone, e-mail, or for one-on-one meetings to answer all of your questions
about the rating process, including: How long does it take? What information do
I need to provide? What sort of rating should I get? Is confidentiality
assured?
If
you have questions about our procedures or would like to engage us for a
rating, please contact the relevant member of our Business Development Team
below, or scroll down to learn more about the Moody’s rating process.
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Please click on the headings
below to learn more
First-Time Rating Process
Obtaining
a Moody's rating is an active, ongoing dialogue between the issuer and our
analysts. As an issuer, you naturally play a critical role in the rating
process, which is transparent and entails an open dialogue about our views,
processes and conclusions. Once issued, our ratings are continuously examined
and updated through dialogues and regular meetings in which you are encouraged
to raise any concerns and present all materials that you believe are pertinent
to our analysis.
If
you are new to Moody’s, the rating process begins with an introductory meeting.
An associate from our Business Development team will introduce Moody’s
procedures and discuss the specific sorts of data that will be most useful in
developing an understanding of your organisation. Our goal at this point is to
ensure that you understand our approach to credit analysis and the types of
information that will be most important to us.
Moody’s
concentrates on several essential elements relevant to your long-term and
short-term risk profile. Typically, we find that this information is already
available internally and is not dissimilar to the sort of information that you
might present to senior management.
Meeting with management
The
initial analytical meeting often takes place at your head office and typically
lasts a full morning or day including site visits. Moody’s will discuss any
issues that you deem relevant. For example, for an industrial company we would
tend to focus on the following subjects:
- Background and history of
the group and the specific entity that will issue the debt.
- Corporate strategy and
philosophy – usually presented by the CEO, CFO or combination thereof.
- A full analysis of
business risk including industry analysis, competitive position,
cyclicality and seasonality, vulnerability to technical changes, and
regulatory environment.
- A detailed analysis of the
company's financial risk including (1) cash flow stability and
predictability and the ability to service debt obligations, (2) operating
margin development and outlook, (3) the cost structure and the ability to
drive efficiencies, and (4) a balance sheet analysis in terms of debt
profile-maturity and quantum. This analysis is forward-looking and would
include a review of three-year financial projections.
- An analysis of the
management team both in terms of their strategic vision for the company
going forward and track record and ability to successfully execute that
strategy.
Committee's rating decision
Following
the meeting the analytical team undertakes further due diligence – generally in
consultation with the company’s finance team – and ultimately makes a
recommendation to a credit committee specifically constituted for your company.
This tends to consist of the relevant industry specialists, regional Managing
Director and other relevant credit specialists within Moody’s.
Rating process timeline
Typically
the entire rating process, from your preliminary discussion with us to the
public release of the rating, takes about 90 days. We are sensitive to the many
concerns you may have about timing and can adjust the process to accommodate
tighter financing schedules and other needs.
Rating dissemination
Once
our rating committee has made its decision, you will be informed of the rating
and our rationale. If you decide to proceed, the new rating is distributed by press
release simultaneously to the major financial media worldwide. It is our
practice to release rating opinions before each issue sells so that investors
may use them in their purchase decisions. A detailed description of your
organisation, the rating rationale and the specific rated issue will also
appear on our web site and in various Moody’s publications.
Please
note that we provide unrated European rating applicants with the ability to
determine whether or not their ratings will be made public. We recognise that
issuers' trust in the confidential nature of our relationship is an essential
component of the rating process. We fully appreciate and understand the
necessity of keeping the information in our possession confidential at all
times and we make every effort to do so.
Further analysis
To
download our report, Understanding Moody's Corporate Bond Ratings and Rating
Process, in acrobat format, please click
HERE.
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Our Rating Methodology
Moody's
analyses all relevant risk factors and viewpoints in arriving at a rating
opinion. Several analytical principles guide that process.
- Focus on the long
term – Our analytical focus is on fundamental
factors that will drive an issuer's long-term ability to meet debt
payments, such as major economic downturns, a radical change in management
strategy, or major regulatory developments. Our ratings are not intended
to ratchet up and down with business or supply-demand cycles or to reflect
short-term market movements.
- Emphasis on
stability and predictability of cash flow –
One of our main concentrations is on getting behind the drivers of cash flow
generation and, in particular, the predictability and sustainability of
cash flow. We will examine financial projections in detail and endeavour
to understand with you the key assumptions behind the projections. If
appropriate, we will undertake sensitivity analyses on management base
cases and build into the model a modest economic downturn to help
determine cash flow resilience.
Specific
risk factors likely to be weighed in a given rating will vary considerably by
sector. Detailed methodology reports for all major sectors we follow can be
obtained through our Issuer Marketing Team and on
the Rating Methodology
section of the site.
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What
to Expect from the Moody’s Rating Relationship
We
understand that issuers want timely and clear responses to their questions and
concerns. We know these are essential elements of a positive professional
relationship. To that end, we have developed some best practices for our
analytical teams.
- The Moody’s analytical
team will contact you ahead of meetings to let you know our agenda and to
seek your agenda issues, tell you who will be attending from Moody’s, and
confirm the time and place for the meeting.
- We will come prepared,
having read recent materials about your organisation, such as the
presentation book for the meeting and the quarterly statement.
- We will strive to ensure
that you know where we stand on key credit issues for your organisation
(both the plusses and the minuses), our credit rating outlook and the most
important factors that could lead us to a rating.
- We will strive to ensure
that you are familiar with our analytical methodologies and absorb your
insights.
- We will listen carefully
to your views on your firm and your industry.
- We will keep open minds.
- We will answer your
questions as fully and promptly as we can.
- We will understand your
securities issuance and other deadlines, and strive to meet them.
- We will follow up after
meetings to ensure matters remain on track, and that your questions for us
have been answered.
We
expect you to let us know how we are measuring up on these commitments.
Subsequent to most meetings, you should receive a feedback form that will give
you a chance to let us know your opinion. We ask you to take the time to
complete it so we can serve you better. Our door is always open.
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The Value of Ratings to the Rated
There
are several ways in which investors use ratings that in turn provide value to
issuers. For many investors, ratings are a critical element in pricing
securities and are often used as a benchmark for setting investment guidelines.
By providing dependable, globally comparable opinions on credit risk, Moody’s
ratings thus help to open investment horizons to a wider variety of market
segments.
Wider access to capital
Since
our credit opinions are widely disseminated, broadly used and clearly understood
by institutional investors, they can open an issuer’s debt to a wider range of
potential buyers. In today’s global markets, a rating is in effect a “credit
passport” that can provide access to international pools of debt capital in,
for instance, markets where an issuer is not well known or where investors may
not be familiar with the issuer’s language, its business culture, or its
accounting conventions.
Financing flexibility
This
wider market access typically translates into reduced funding costs,
particularly for higher-rated issuers. The credibility of our ratings may also
allow rated issuers to enter the capital markets more frequently and more
economically and to sell larger offerings at longer maturities.
Market stability
Ratings
and the reports on the research behind our opinions can also help to maintain
investor confidence, especially during periods of market stress. For example, a
news item could adversely affect the prices of a company’s outstanding bonds,
even if the news has no real impact on the bonds' long-term creditworthiness.
The reassurance of a Moody’s rating and accompanying analysis of the situation
can help to alleviate investor concerns.
Rating Assessment Service - RAS
Moody's
Rating Assessment Service (RAS) is a product that enables clients to know in
advance and with certainty how future events such as an acquisition or a debt
restructuring will affect their ratings. Rated issuers have always been able to
discuss with an analyst how their ratings might be affected by future actions –
and they still can. But RAS enables us to give issuers a formal notification –
stemming from a full rating committee – of how their ratings will be affected
by a specific future event.
Clients
can also present us with a range of scenarios (for example, different
debt/equity structures for an acquisition), each of which might have different
rating outcomes. RAS can also be used by unrated issuers who want to see how
their creditworthiness might be different should they undertake a significant
transaction. In 2001, Moody's completed, or had in progress, at least 30 RAS
assignments.
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