S&P Global Ratings : assessing the creditworthiness of a company
Interview with Roberto Paciotti, Country Manager Italy for S&P Global Ratings
What is a corporate credit rating?
The rating provides an independent opinion about the ability and willingness of an issuer, such as a corporation to meet its financial obligations in full and on time. The rating, therefore, expresses an opinion about the creditworthiness and may play a useful role in enabling companies to access to capital markets diversifying their funding sources, generating benefits in terms of capital-raising costs and transparency. In fact, thanks to the rating, investors have a screening device to match the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions.
How does the credit rating process work and how long does it take?
To obtain a rating, the issuer, which may be a company, a bank or a public entity, needs to make a formal request to a rating agency. The process of assigning a rating usually lasts 4-6 weeks starting from the date of the management meeting. The management meeting is the first formal meeting between the management and the team of analysts who, once the task is finalised, are identified by the agency as referents for the company. Using public information as well as confidential information collected from meetings and interviews with the top management, analysts evaluate the economic and financial situation of the issuer and formulate a rating proposal, applying S&P criteria and methodologies for the specific sector of reference. S&P methodologies and criteria are public and consist of a combination of qualitative and quantitative analysis that assesses elements such as country risk, sector risk, the company's competitive position and its governance, as well as its financial soundness and the business risk. The decision on the rating to be assigned is always taken collegially by a rating committee and accepted by a majority. The company can also choose to keep the rating confidential. Where it is public, the rating action is communicated to the market by a press release that explains in detail the rationale. Then the rating is constantly monitored to incorporate any changes. Current European regulations require the rating to be reviewed in all its analysis components at least once a year.
What kind of information is required to get a rating?
For a first rating assignment, the company must provide its audited financial reports for the last 3/5 years, the corporate organisation chart and information on all financial instruments used, the company's financial and business position, its governance and business plan. Once the rating has been assigned, the company is committed to maintaining an open and constant dialogue with the analysts to provide the data and information necessary to keep the rating continuously updated.
Why choose S&P?
S&P has long experience accumulated over its 150 years in the rating business and is recognised as one of the leading global rating agencies. The agency has a network of offices in 28 countries and assigns more than 50,000 ratings to companies, 58,000 ratings to financial institutions, 7,000 insurance ratings and 952,000 emissions ratings from sovereign countries and local and regional authorities around the world. S&P is also active in structured finance transactions to which it currently attributes over 49,000 ratings.