Attributes and Limitations of Credit Ratings

Updated February 2014

Users of Capital Intelligence’s (CI) credit ratings should be aware of the following attributes and limitations of the ratings:

• CI’s credit ratings are statements of opinion and not statements of fact. They are an independent opinion of the creditworthiness of an entity or obligor either in general (an issuer rating) or with regard to a specific financial obligation (an issue rating).
• CI’s credit ratings are intended to provide a relative ranking of credit risk among rated entities and obligations based on fundamental credit analysis and expressed in rating symbols from ‘AAA’ to ‘D’. Reflecting the limited number of gradations, entities or obligations with the same rating may not be of exactly the same credit quality, but they will share substantially similar credit risk characteristics.
• CI’s credit ratings are assigned by, and all subsequent rating actions (including upgrades, downgrades and changes in outlook) determined by, rating committees and never by an individual analyst.
• CI’s credit ratings indicate the likelihood of default, but they do not indicate a specific probability of default over any given time period.
• CI may initiate credit ratings on issuers without the request of the issuer provided there is adequate public information available to form a credible opinion of the issuer’s creditworthiness.
• CI does not audit or verify the accuracy of information obtained from issuers as part of the rating process and may, in some cases, rely on unaudited financial data.
• A credit rating may, at any time, be raised, lowered, placed under review, suspended or withdrawn in accordance with CI’s policies and procedures.
• CI may assign private ‘shadow’ sovereign ratings – internal assessments of sovereign risk that are not intended for publication and are used as an input into other rating assessments. Shadow sovereign ratings may constrain or cap the ratings of other rated issuers within a country. Shadow sovereign ratings may be based on a lower level of information or less detailed analysis compared to public sovereign ratings and, although monitored, may be reviewed less frequently than every six months. They do not represent a full rating opinion.

CI’s credit ratings may be used as an analytical input into, but are not a substitute for, investors’ own risk management. Investors in particular should be aware that:

• CI’s credit ratings focus on one aspect of investment risk – credit (or repayment) risk – and do not explicitly capture loss severity or recovery prospects.
• CI’s ratings are not recommendations to purchase, sell, or hold stocks or shares in an institution or particular security.
• CI’s ratings do not assess or indicate the likelihood of changes in the market price of rated instruments due to market-related factors such as changes in interest rates or liquidity.
• CI’s ratings do not provide an opinion of the liquidity in the market of an issuer’s securities.

Rating Definitions

Foreign Currency and Local Currency Ratings

CI's international issuer credit ratings indicate the general creditworthiness of an entity (such as a bank, corporate or sovereign) and the likelihood that it will meet its financial obligations in a timely manner.
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Support Ratings for Banks

CI's support ratings assess the likelihood that, in the event of difficulties, a bank would receive sufficient financial assistance from the government or private owners to enable it to continue meeting its financial obligations in a timely manner.
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Financial Strength Ratings

CI's financial strength ratings provide an opinion of a bank's inherent financial strength, soundness and risk profile.
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Bond Issue Ratings

CI's long-term bond, other debt and Sukuk ratings are applicable to both specific corporate financial contracts and bank obligations with an original maturity in excess of one year.
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National Ratings

CI's national ratings provide an opinion as to the ability and willingness of obligors to meet financial commitments either in general (an issuer credit rating) or with respect to a specific debt instrument (an issue credit rating) relative to all...
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Definition of Default

CI considers a default to have occurred when an issuer or obligor fails to pay a material sum of principal or interest on a financial obligation in accordance with its terms and conditions or when an issuer files for bankruptcy...
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Policy on Unsolicited Ratings

Capital Intelligence may initiate credit ratings on issuers without the request of the issuer provided there is adequate public information available to form a credible opinion of the issuer’s creditworthiness. These unsolicited ratings are produced as a service to subscribers and other market participants. There is, however, no difference between unsolicited and solicited ratings in terms of the criteria applied and rating committee procedures.
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