Rating scales
The Credit Ratings on this scale are a relative measure of the long-term creditworthiness of issuers or issues, from 18 months onwards. The credit risk is measured on a 22-grade rating scale that extends from AAA to D
Default definitions
An issuer or an issue is considered to be in default when any of the following occurs:
The issuer has missed a payment on its financial obligations (interests or principal). If a contractual grace period exists, then EthiFinance Ratings will consider that the company is in default if the missed payment has not been cured within the earlier of the grace period or the next 30 calendar days.
The issuer is undergoing insolvency proceedings, bankruptcy filings, administrative receivership or is in a situation involving similar protective measures. In this context, EthiFinance considers an exchange to be distressed if, in the process, creditors are forced to accept less favourable terms than the original promise.
A specific case of a ‘Default’ is a ‘Selective Default’ which refers to an issuer who, instead of missing its financial payments globally, decides to default on only one or more of its financial obligations.
Sovereigns by definition are not involved in insolvency proceedings, bankruptcy filings or administrative receiverships and therefore these events of default are not applicable to them. Yet they can miss payments and be considered in default.
Type of ratings
EthiFinance Ratings’ credit ratings can be classified as solicited or unsolicited
Solicited ratings
Solicited credit ratings are those requested by the rated entity (issuer or issue). The issuer actively collaborates in the process with both public and private information.
Unsolicited ratings
Unsolicited credit ratings are those that are not initiated at the request of the rated entity. The entity is rated by decision of the credit rating agency or upon the request of a third party. The rating is assigned without the participation of the rated entity, with only public information in the case of public ratings, and with private information in the case of private ratings.
Rating outlooks
EthiFinance Ratings’ outlooks reflect the credit rating agency’s opinion of the probable direction of a rating over the medium term. There are four categories of rating outlooks:
Positive (POS). A ‘Positive’ outlook reflects that a rating is more likely to be upgraded over the medium term.
Negative (NEG). A ‘Negative’ outlook indicates a higher likelihood of a rating downgrade over the medium term.
Stable (STA). A Stable outlook reflects that a rating change is unlikely over the medium term.
Evolving (EVO). An evolving outlook indicates that the situation is evolving in such a manner that the direction of the rating is unclear due to developing circumstances.
In addition, positive, negative, or evolving outlooks do not always result in a rating change.
After the assignment of an outlook, the timing of a possible rating change is not pre-defined as it is subject to a number of factors, all of which could influence a company’s credit metrics and thereby result in a rating action. However, we estimate that there is usually a period of 9 to 24 months between the assignment of an outlook and the resulting rating change, if any, unless there is new information which could lead to an earlier rating action. In any case, outlooks are, like ratings, subject to an on-going review.
EthiFinance Ratings’ outlooks apply to long-term ratings with the exception of structured finance ratings. By definition, short-term ratings and short-term instruments do not have rating outlooks.
Rating under review
When an event that could change the rating of a company occurs, but EthiFinance Ratings lacks enough information or needs further analysis to review its rating, it may decide to put the rating under review.
The label ‘under review’ is a temporary classification by which the credit rating agency informs stakeholders of an upcoming rating action. When a rating is put under review, the current rating and outlook remain valid until the next rating action.
Unlike outlooks, ratings under review will usually result in a rating action in the coming three to six months once the review has been announced, but may sometimes last longer when EthiFinance Ratings is expecting further guidance and information in order to assign its ratings. Events which may trigger such reviews are:
Due to changes in methodologies, models or key rating assumptions.
Due to economic, financial or credit reasons, such as mergers, acquisitions, disposals of a significant part of a company, significant unforeseen changes in the financial situation of a company or its operating environment.
Due to other reasons (e.g., departure of analysts, occurrence of conflicts of interests).
Ratings under review may result in an upgrade, a downgrade, or no change for the rating and/or the outlook, based on the analysis performed by EthiFinance Ratings.
.avif)
Rating withdrawal
Whenever EthiFinance Ratings ceases to rate an entity, an issue or a structured product, such entities, along with their ratings shall be withdrawn.
The following are instances that lead to a withdrawal of a company’s rating:
In case of incorrect or insufficient information on issuer/issue.
In case of bankruptcy of the rated entity or debt restructuring.
In case of reorganisation of the rated entity (including the merger or acquisition of the rated entity).
In case of the end of maturity of the debt obligation, or in case the debt is redeemed, called, prefunded, or cancelled.
In case of automatic invalidity of the rating due to the business model of the CRA (such as the expiry of ratings valid for a predetermined period).
In case of rating withdrawal due to other reasons.
In case the rating is affected by a conflict of interests as specified in Annex I, Section B, Point 3 of the Regulation (EC) No 1060/2009.
In case of a client’s request.
The withdrawal action is duly notified in the same manner as all other rating actions.
Meet our experts!
Reliable ESG and Credit Data for informed decisions
Access expert, independent, and actionable insights tailored to your business needs.
