Information and Rating Agency

Agency`s Methodology

CREDIT RATING

Creditworthiness assessment of a Company is performed an integrated approach. It provides an analysis of a number of different indicators and certain criteria test. Here are the main criteria by which creditworthiness is assessed:

  • activity of the company;
  • state of the market environment and the company's position in it;
  • the company's ability to make profit during its current operating activities to repay debt (financial capacity);
  • size of the current capital;
  • existence of assets to ensure future payments;
  • terms of transaction.

Herewith, an important role is played by data taken from  financial statements of the company. Calculated values ​​of certain financial ratios allow to generate the rating of a company`s creditworthiness. There are different groups of coefficients that are used for creditworthiness assessment: financial stability, liquidity, solvency, assets structure and other ratios.

 

Subject to compliance with criterion level, appropriate values ​​in points are assigned to coefficients. In this case, financial stability and liquidity ratios have the largest contribution to the rating score. If value of the ratio does not match with the criterion level, its contribution to the rating score is 0, thereby it reduces it.

 

Depending on the obtained values ​​of ratting score a company refers to one of the four solvency classes. These classes are reflected in the credit rating scale developed by the Agency, which is used by Agency's analysts to evaluate creditworthiness of a company.

 

The first class of solvency (rating values according to the scale ​​crAAA; crAA; crA) refers to enterprises with the highest rating score. This means financial stability of the enterprise and its high creditworthiness. Based on common practice, nowadays getting by Ukrainian companies maximum total rating score is extremely rare situation. Most frequently ratings of first solvency class are assigned to European companies with the highest activity results and minimal country risks.

 

The second class of solvency (rating values according to the scale ​​crBBB; crBB; crB) includes companies with high business reliability. When lending to such borrowers there is a minor degree of reasonable risk, compensation for which would serve both the availability of highly liquid collateral, and the proposed increase in the interest rate on a loan or any other form of additional ensuring by the borrower arising from the loan obligations.

 

The third class of solvency (rating values according to the scale ​​crCCC ; crCC ; crC) refers to companies, rating score of which is lower than the one of the first two classes enterprises. Lending to such a borrower is possible given its stable market position, increasing sales turnover, pledge over assets related to the highest category of liquidity, presence of a good credit history, absence of bad bank debts, etc.

 

Enterprises which obtained the lowest score belong to the fourth class of solvency (rating values according to the scale ​​crDDD; crDD; crD). This indicates extremely poor financial condition of the borrower company and may cause failure of lending to it.

 

All other companies fall into the categories NoR1, NoR2, NoR3, NoR4.

 

In conclusion, it should be noted that the method of creditworthiness rating assignment to borrowers based solely on the analysis of financial statements does not give a definitive answer to the question about the possibility of lending to potential borrowers. According to the Agency`s methodology, along with the analysis of the above mentioned five groups of indicators, another factors are taken into account: market in which a company operates, availability of risk management policy, development strategy of a company and many others. In the absence of financial data, availability of this information allows us to evaluate creditworthiness of a company. At the same time, great attention is paid to country risks that a company may face.   

 

RATING SCALE

Rating

Description

crAAA Excellent creditworthiness and financial stability. The company is affected by country risk weakly. Risk of default or delayed payment is exceptionally low.

crAA

Excellent creditworthiness and financial stability. The company is affected by country risk. Risk of default or delayed payment is very low.
crA

Excellent creditworthiness and financial stability. The company is affected by country risk strongly. Risk of default or delayed payment is low.

crBBB High creditworthiness and financial stability. The company is affected by country risk weakly. Risk of default or delayed payment is low.
crBB High creditworthiness and financial stability. The company is affected by country risk. Risk of default or delayed payment is moderate.
crB

High creditworthiness and financial stability The company is affected by country risk strongly. Risk of default or delayed payment is below average.

crCCC Average creditworthiness and financial stability. The company is affected by country risk weakly. Risk of default or delayed payment is average.
crCC Average creditworthiness and financial stability. The company is affected by country risk. Risk of default or delayed payment is above average.
crC

Average creditworthiness and financial stability. The company is affected by country risk strongly. Risk of default or delayed payment is high.

crDDD Low creditworthiness and financial stability. The company is affected by country risk weakly. High risk of default due to poor financial condition of the company.
crDD Low creditworthiness and financial stability. The company is affected by country risk. Extremely high risk of default due to poor financial condition of the company.
crD Low creditworthiness and financial stability. The company is affected by country risk strongly. Inability to meet financial obligations due to poor financial condition of the company.
NoR1 No credit rating is given due to lack of data for analysis.
NoR2 No credit rating is given due to the company insufficient period of existence. 
NoR3 No credit rating is given due to the fact the company is in process of bankruptcy or had ceased its activities.
NoR4 Withdrawal of rating by Agency.

 

INVESTMENT ATTRACTIVENESS RATING

This type of rating represents an opinion of rating agency with respect to the attractiveness of the business project or enterprise in terms of investing in it and the risks that are associated with this investment. This kind of rating enables to evaluate the advantages and disadvantages of a particular investment project as well as a favorable investment climate in a particular region or industry.

 

Assessment of investment attractiveness of the project is based on the method of expert evaluation. It provides rating score formation by points assigning to groups of indicators of the project. There are different groups of indicators that are used for rating score formation, including both financial information on the project, as well as its marketing and structural indicators.

 

Each group of indicators has its own weight in the final rating score. Depending on the level of indicators compliance, the group is assigned corresponding value points. At the same time, financial indicators have the maximum contribution to the rating score. If the group does not meet required by the project level, its contribution to the rating equals 0, and, thereby, it reduces the score.

 

Depending on the obtained rating score value​​, the project refers to one of the four investment attractiveness classes. These classes are reflected in the rating scale developed by the Agency, which is used by Agency's analysts to evaluate investment attractiveness of the project.

 

The first class of investment attractiveness (rating values according to the scale ​​inAAA; inAA; inA) includes projects that have the highest ratings. This indicates an extremely rapid funds return on the project and its high profitability.

 

The second class of investment attractiveness (rating values according to the scale ​​inBBB; inBB; inB) refers to projects with high investment reliability. When investing in this project present there is a minor degree of reasonable risk, compensation for which would serve presence of a stable market demand, good marketing policy and high level of project organization, its risk management strategy, legal support.

 

The third class of investment attractiveness (rating values according to the scale ​​inCCC ; inCC , InC) includes projects, ranking score of which is lower than the one of the first two classes projects. Investing and such a project is possible subject to the existence of large investment prospects in the future, the possibility of applying alternative investment plans, the project organizers` absence of liabilities to banks, etc.

 

Projects that obtained the lowest score belong to the fourth class of investment attractiveness (rating values according to the scale ​​inDDD; inDD; inD). This indicates extremely poor level of investment attractiveness of the project and may cause failure of its financing.

 

All other projects fall into the categories inNoR1, inNoR2, inNoR3.

 

At the same time, similar to credit ratings, great attention is paid to country risks that the project may face.

 

RATING SCALE

Rating Description
inAAA Superlative level of investment attractiveness. The object is not affected by country risk. Risk of default investment is exceptionally low.
inAA Excellent level of investment attractiveness. The company is affected by country risk weakly. Risk of default investment is very low.
inA Very high level of investment attractiveness. There is certain sensitivity to the impact of country risk. Risk of default investment is low.
inBBB High level of investment attractiveness. Sensitivity to the impact of country risk is observed. Risk of default investment is low enough.
inBB Level of investment attractiveness is significantly above average. There is a little dependence on the impact of country risk. Risk of default investment is moderate.
inB
Level of investment attractiveness is above average. Dependence on the impact of country risk is observed. Risk of default investment is below average
inCCC Average level of investment attractiveness. There is a risk of certain problems due to the dependence on country risk influence. Risk of default investment is average.
inCC Level of investment attractiveness is below average. There is a risk of certain problems due to the significant dependence on country risk influence.  Risk of default investment is above average.
inC Level of investment attractiveness is significantly below average. There is a risk of certain problems due to the strong dependence on country risk influence. Risk of default investment is high.
inDDD Low level of investment attractiveness. The object is characterized by high country risk. Probability of liquidation or bankruptcy.
inDD Very low level of investment attractiveness. The object is characterized by very high country risk Probability of liquidation or bankruptcy is high.
inD Extremely low level of investment attractiveness. The object is extremely affected country risk. Liquidation or bankruptcy is expected.
inNoR1 No investment attractiveness rating is given due to lack of data for analysis.
inNoR2 No investment attractiveness rating is given due to the fact the object is in process of liquidation, bankruptcy or had ceased its activities.
inNoR3 Withdrawal of rating by Agency.