Credit Ratings Methodology

CREDIT RATING PROCESS

 Credit Ratings
Methodology

Business Financial
Risk Profile Risk Profile
Analysis Analysis
• Validation of “Company
Country • Political
Position” • Economic
• Trends Risk
• Industry – Specific factors
• Quality of Earnings • Foreign exchange
& Analytical adjustments
• Peer Group Comparisons

Profitability Industry
/ Peer Group Business Factors
Comparisons
Risk
• Industry Trends
• Industry Structure
• Market Size
• Competitive Factors
• Growth Potential
• Market position
• Cyclicality
• Keys to Success
Company • Bases of Competition
• Size
Position • Changing Technology
• Diversification
• Operating Risk
• Management
• Regulatory Environment
• Operating sources & uses
Of liquidity
• • Accounting Regime
Other potential calls on Accounting
Liquidity • Reporting & Disclosure
• Debt Characteristics • Analytical adjustments
• Bank credit facilities

Liquidity / Governance
Short-term Financial Risk
Factors Risk

• Ownership
• Focus on debt • Board of directors
service capability • Management practices
• Analytical distinctions with • Financial Strategy
profitability Cash Flow • Risk Tolerance
• Cash flow measures / Adequacy • Accounting Practices
• ratios • Internal controls
 BUSINESS RISK/FINANCIAL RISK
MATRIX
Risk Profile Minimal Moderate Intermediate Aggressive Highly
Leveraged

Excellent AAA AA A BBB BB

Strong AA A A- BBB- BB-
Satisfactory A BBB+ BBB BB+ B+
Weak BBB BBB- BB+ BB- B
Vulnerable BB B+ B+ B B-
# The matrix does not apply to the lowest rungs of credit spectrum i.e. ‘CCC’ category and below

Note: The above grid is only an indicative framework to guide an Analyst in determining the
rating.