Вы находитесь на странице: 1из 30

Click to edit Master subtitle style

Presented by: Hardik


6/2/12

What is Credit Rating


A credit rating represents the rating agency's Click to edit Master subtitle style opinion on the likelihood of a rated debt obligation being repaid in full and on time.

6/2/12

BIG 3 RATING AGENCIES


S&P Click to edit Master subtitle style Moodys Fitch Group

6/2/12

S&P and Moody's are US-based, while Fitch is

dual-headquartered inNew York Cityand London.

Dagongis a Beijing-based rating agency and

the only non-American agency to have gained some recognition from the western financial press.[11]

6/2/12

Indias four big credit rating companies


CRISIL Ltd CARE Ltd Fitch Ratings ICRA

6/2/12

Importance
To increase investor confidence and guide

them

Facilitate decision making Measures probability of default to meet

obligations
Strengths and weaknesses of the company Rated instrument enjoys higher confidence

6/2/12

A credit rating is not a recommendation to

buy, hold, or sell a debt instrument. A credit rating is one of the inputs used by investors to make an investment decision instruments, while equity research relates to equity shares. A credit rating is focused on the risk of non-payment, the primary variable in debt instruments. Equity research is focused on growth possibilities, for that is what drives equity valuations.

Credit ratings are assigned to debt

6/2/12

A credit rating agency relies on a variety of

information sources, including published annual reports. An audit process is designed to detect fraud or misrepresentation of information, whereas the credit rating process is not. During a credit rating exercise, issuers provide rating agencies with confidential information and insights into business strategy that are not normally available in the public domain

6/2/12

A credit rating is not an assurance of

repayment of the rated instrument. Rather, it is an opinion on the relative degree of risk associated with such repayment. This opinion represents a probabilistic estimate of the likelihood of default. In India, the capital markets regulator, the Securities and Exchange Board of India (SEBI), regulates the rating agencies in the country.

6/2/12

Credit ratings help investors facilitate

comparative assessment of investment options, complement the investors' own credit analysis, and allow asset monitoring. If a credit rating is downgraded it does not mean that a default is anticipated. All it indicates is that the risk associated with the debt obligation is relatively higher than what it was before the downgrade.

6/2/12

Ratings agencies are of course far from

infallible: in 2008, they came in for much justified criticismfor their having been blind to the sub-prime housing bubble, and to the underlying risks of the complex financial instruments that they rated highly but which collapsed spectacularly.

6/2/12

Then, when financial markets went into a

downward spiral, the rating agencies compounded the problem by speedily and aggressively downgrading the financial instruments, which only hastened the downfall of the financial institutions that were holding them.

6/2/12

A lesson from the 2008 crisis do not blindly rely on the CRA. Global financial crisis has put cra in the limelight as they failed to give adequate warning to investors of the risk involved in MBS and other structured products. US sub-prime crisis cra were blamed for their generous rating of dubious mortgage linked instruments during boom.

6/2/12

International CRA
All 3 are under regulatory scrutiny for their passive

role in the 2007 US residential mortgage backed securities (RMBS) crisis. - Key role in the bankruptcy of California based Orange County 1994. Orange County a very rich municipality in California went bankrupt due to speculation in derivatives. However CRA had given good rating. - Giving superior investment grade to Enron in 2001. proactive.

- Role was reactive in Asian crisis rather than being


6/2/12

What is CDS?
Acredit default swap(CDS) is a form of

insurancethat protects the buyer of the CDS in the case of a loandefault

6/2/12

What is CDO
CDO's, or Collateralized Debt Obligations, are

sophisticated financial tools that repackage individual loans into a product that can be sold on the secondary market. These packages consist of auto loans, credit card debt, or corporate debt. They are called collateralized because they have some type of collateral behind them.

CDO's were created to provide more liquidity

in the economy. It allows banks and corporations to sell off debt, which frees up 6/2/12 more capital to invest or loan

CDO is like a promise to pay cash flows to

investors in a prescribed sequence, based on how much cash flow the CDO collects from the pool of bonds or other assets it owns.

6/2/12

A CDO is a type ofasset-backed security. To

create a CDO, acorporate entityis constructed to hold assets ascollateraland to sell packages ofcash flowsto investors. A CDO is constructed as follows: acquire aportfolioof underlying assets. Common underlyingassetsheld include mortgage-backed securities, commercial real estate bonds and corporate loans.

Aspecial purpose entity(SPE) is designed to

The SPE issuesbondsto investors in 6/2/12

6/2/12

6/2/12

6/2/12

6/2/12

6/2/12

The Standard & Poor's rating scale is as

follows: AAA, AA, A, BBB, BB, B, CCC, CC, C, D.

The Moody's rating system is similar in

concept but the verb age is a little different. It is as follows: AAA, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C.

6/2/12

Major CRA In INDIA


CRISIL, Credit Rating Information services of India LTD. From a

pioneering step taken in 1987, to playing an integral role in India's development milestones, CRISIL has emerged as India's leading Ratings, Research, Risk and Policy Advisory company.

CARE Credit Analysis & Research Ltd. (CARE), incorporated in April

1993, is a credit rating, information and advisory services company promoted by Industrial Development Bank of India (IDBI), Canara Bank, Unit Trust of India (UTI) and other leading banks and financial services companies. In all CARE has 14 shareholders

ICRA , Investment Credit Rating Agency of India Ltd (an Associate

of Moody's Investors Service) was incorporated in 1991 as an independent and professional company. ICRA is a leading provider of investment information and credit rating services in India. ICRAs major shareholders include Moody's Investors Service and leading Indian financial institutions and banks. 6/2/12

CRISILs association with Standard & Poors, a

division of The McGraw-Hill Companies, dates back to 1996 when both companies started working together on rating methodologies and joint projects. S&P is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. This partnership has now culminated in Standard & Poors acquiring a majority shareholding in CRISIL.

6/2/12

CARE has been granted registration by SEBI

under the Securities & Exchange Board of India (Credit Rating Agencies) Regulations,1999.
The rating coverage has extended beyond

industrial companies, to include public utilities, financial institutions, infrastructure projects, special purpose vehicles, state governments and municipal bodies. CARE's clients include some of the largest private sector manufacturing and financial services companies as well financial institutions of India. CARE is well equipped to rate all types of debt

6/2/12

Global rating agency Standard and Poors

holds a 51% stake in Crisil, Moodys is the single largest shareholder in Icra with a 28.51% stake, while Fitch is unlisted

6/2/12

ICRA Limited, was established in 1991, and

was originally namedInvestment Information and Credit Rating Agency of India Limited(IICRA India). It was a jointventure betweenMoody'sand various Indian commercial banks and financial services companies. Limited, and went public on 13 April 1997,

The company changed its name toICRA

6/2/12

Merci beaucoup
Click to edit Master subtitle style

6/2/12

Please ask pertinent questions only