moodys hornig 04-2010 - finansanalytiker.dk · moody’s ratings, april 2010 4 moody’s investors...

Moody’s Ratings

April 2010Corneles Hornig, Business Development Officer

Moody’s Ratings, April 2010 2

Overview: Moody’s Ratings

» The Moody’s Rating

» Rating Process

» Analytic Approach

» Current Situation

Moody’s Ratings, April 2010

The Moody’s Rating


Moody’s Investors Service

» A leading global credit rating, research and risk analysis firm

» In Europe since 1986

» 3,000 institutional investors and 22,000 subscribers

» Providing credit ratings and analysis on $30 trillion of debt:

– 150.000 corporate and government securities and structured products

– 75.000 public finance obligations

– 10.000 corporate and financial institution relationships

– 100 sovereign nations

Leading global rating agency


long term short term

Prime-1

Prime-2

Prime-3

Not Prime

Aaa

Aa1Aa2Aa3

A1A2A3

Baa1Baa2Baa3

Ba1Ba2Ba3

B1B2B3

Caa1Caa2Caa3

Ca

C

BCA (1)

1

2-4

5-7

8-10

11-13

14-16

17-19

20

21

Moody´s Rating Scale

» Independent opinion

» Probability of default andseverity of loss

» Global consistency

» Issuer and Issuance ratings

A globallycomparable rating

(1) Baseline Credit Assessment


Principal Benefits of a Moody´s Rating - Issuer

» Wider access to the global capital markets

» Diversification of investor base

» Means of communicating creditworthiness to key counterparties

» Internal management tool

– to assist financial and strategic planning

– SWOT analysis

» Independent benchmark

– to help determine balance considerations of bondholders andshareholders

A Moody´s rating helps to optimise funding


Principal Benefits of a Rating - Investors

» Independent indicator of credit quality

» Pricing benchmark

» Facilitates secondary market liquidity

» Strategic tool for portfolio management techniques

2,800 international investors = 85% of the world debt markets useMoody´s ratings and research


The Growing Significance of Ratings

» Continued expansion of European Capital Markets

» Ratings in the current environment:

– to assist financial and strategic planning

– Diversification of bank lending

– Secure liquidity

– Deal with borrowing costs and covenants

– Access to wider and different investor base

– Increase counterparty confidence

Investors and creditors rely on Moody’s ratings


Moody’s Rating Process


The Rating Process

• Simple Process Initiation

» Commercial engagement via application

• Rapid Completion

» Typically 3 months

• Involvement not onerous

» Information provision

» Half day analyst meeting

• Issuer remains in control throughout the rating process and no obligationto publish

We will work to the issuers schedule & heretains control of the process


Typical Timescale for a Rating – 90 days

Issuer decision toaccess the debtmarkets

Preliminarydiscussionwith ratingagency

Ratingcommittee

markets informedIssuer and credit

of rating andrationale

Submit advancebackgroundmaterials

Schedulingmeetingdate

Issuer prepares backgroundmaterials and presentation

0 90 DaysDays 30

Agency credit analysis

Analytical meeting with the agencypresentation, question & answers

Timing may be accelerated to accommodate tighter financingschedules


Information Provision

Areas of rating focus:

» Organisation, Management, Corporate Governance

» Strategic Vision and Goals for Company

» Industry Background & Regulation

» Business Activities & Operating Performance

» Financial Information & Proforma Projections

» Supporting Documentation

Initial Documentation Provision

» 3 years of audited financials

» 3-5 years financial projections

» Strategic Business Plan including forecasts

» Information memorandums


Analytic Approach


Methodological Rating Approach

Transparent published methodologies for all franchises

» CFG: Industry specific methodologies, GRI

» Infrastructure: PFI/PPP/P3

» FIG: BFSR (Scorecard) & JDA

» Insurance: IFSR (Scorecard); Life, General, Specialist

» Sub-Sovereign: RLG, GRI, Universities

Transparent rating approach appreciated by issuers andinvestors alike


Corporate ratings typically rest on…

Global / Domestic

QUALITATIVEANALYSIS

ManagementStrategic DirectionFinancial Flexibility

QUANTITATIVE ANALYSISFinancial Statements

Past PerformanceFuture Projections

MARKET POSITION

COMPETITIVE TRENDS IN SECTORGlobal / Domestic

REGULATORY ENVIRONMENT

SECTORAL (INDUSTRY) ANALYSIS

SOVEREIGN MACRO-ECONOMIC ANALYSIS


Structure of the issuance

Who is the issuer?

Where lies the debt: Holding structure?

Where is the cash-flow generated?

Where are the assets?

How are the relations within the group?

... And the issuance characteristics


Example of Key Rating Factors: Global ConstructionCompanies (Scorecard)


Typical Restrictions of Small Companies

» Dependency on demand volatility

» Ability to cope with increasing costs

» Negotiation power at clients and suppliers

» Access to debt or equity capital

» Ability to react to a changing competitive environment

» Regional concentration

» Concentration risk with regards to clients, suppliers, employees

» Ability to invest in R&D

» Ability to hedge interest rate, currency or commodity risks

» IT challenges due to standard software


Current Situation


20

Rating Outlooks


21

Upgrades vs Downgrades


Defaults Rates

European HY 12 Months Default Rates (12/2009)


Corneles Hornig – Business Development Officer, German speaking area,Denmark & Finland

Tel.: +49 69 707 30 746 [email protected]


© 2009 Moody’s Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTEDBY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER ORBY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sourcesbelieved by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “ASIS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resultingfrom, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees oragents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect,special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of suchdamages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, project ions, and other observations, if any, constituting part ofthe information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OFANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion mustbe weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its ownstudy and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.

Moody’s Investors Service, Inc. (“MIS”), a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities(including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MISfor appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address theindependence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated ent ities, and between entities whohold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annuall y at www.moodys.com under the heading“Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

moodys hornig 04-2010 - finansanalytiker.dk · moody’s ratings, april 2010 4 moody’s investors...

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