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Moody’s Investors Service is a leading global credit
rating, research and risk analysis firm which provides crucial benefits and
valuable opportunities for issuers and investors alike.
As the established global leader in credit ratings and research,
Moody’s rates the majority of cross-border issues out of the Asia Pacific
region. Moody’s offers extensive rating coverage, together with highly
trained and experienced professionals who are dedicated to providing the
highest quality service possible.
This section provides important information about Moody's rating
process for Australian debt issuers, prospective debt issuers, and entities
that are considering obtaining a Moody’s rating for another purpose.
For more information about Moody’s rating process, or to engage us to
obtain a rating, please contact:
Please click on the headings below to learn more about Moody’s.
· Introduction
· Moody’s rating process
· Moody’s rating methodology
· What to expect from the Moody’s rating relationship
· The benefits of a Moody’s rating
INTRODUCTION
Moody’s credit analysis focuses on the fundamental factors and key business
drivers relevant to an issuer’s long-term and short-term risk profile. The
foundation of Moody’s methodology rests on two basic questions:
What is the risk to the debt holder of not receiving timely payment of
principal and interest on this specific debt security?
and
How does the level of risk compare with that of all other debt securities?
Moody’s measures the ability of an issuer to generate cash in the
future. Determining the predictability of future cash generation is therefore
the primary focus of Moody’s analysis. This determination is built on a
careful analysis of the individual issuer and of its strengths and weaknesses
compared to those of its peers worldwide. An examination of factors external
to the issuer is also conducted, including industry- or country-level trends
that could impact the entity’s ability to meet its debt obligations. Of
particular concern is the ability of management to sustain cash generation in
the face of adverse changes in the business environment.
To download Moody’s rating policy report, Understanding Moody’s
Corporate Bond Ratings and Rating Process, in Adobe Acrobat format, click
HERE.
MOODY’S RATING PROCESS
In the course of the rating process, a Moody’s analyst:
· Gathers
information sufficient to evaluate risk to investors who might own or buy a
given security,
·
Develops a conclusion in committee on the appropriate rating,
· Monitors the security on an
ongoing basis to determine whether the rating should be changed, and
· Informs the marketplace of
Moody’s actions.
The rating process involves an active, ongoing dialogue between the issuer
and Moody’s analysts. Once published, Moody’s ratings are continuously
monitored and updated through dialogues and regular meetings, during which issuers
are encouraged to raise any concerns and present all materials that are pertinent to the analysis.
If an issuer is new to Moody’s, the rating process begins with an
introductory meeting or teleconference call. The purpose of this initial
discussion is to introduce Moody’s rating process and methodology, and to
provide additional information regarding the specific sorts of data that will
be most useful in developing an understanding of the organisation. Our goal
is to be as transparent as possible, and to ensure that issuers understand
Moody’s rating methodology and process.
1) Meeting with Management
For a first-time rating, the initial rating meeting is generally held at a
company’s head office location, and may last from a half day to a full day.
Depending upon the nature of the entity being rated, site visits may also be
involved. The Moody’s analyst will discuss the meeting agenda with the issuer
in advance of the meeting, to ensure the issuer is aware of the type of
information Moody’s typically receives at such a meeting.
The
discussion at the rating meeting will generally focus on the following
subjects:
·
Background and history of the company/entity
· Industry/sector trends
· National political and regulatory
environment
· Management quality, experience,
track record, and attitude toward risk-taking
· Management structure
· Basic operating and competitive
position
· Corporate strategy and philosophy
· Debt structure, including structural
subordination and priority of claim, and
· Financial position and sources of
liquidity, including (1) cash flow stability and predictability and ability
to service debt obligations, (2) operating margin, and (3) a balance sheet
analysis in terms of debt profile and maturity
Following the meeting, the Moody’s analyst will continue with the analysis,
and will generally conduct further discussions with the issuer in order to
obtain follow-up information and clarification. Upon completion of the
analysis, the Moody’s analyst will make a recommendation to a Moody’s rating
committee.
2) Moody’s Rating Committee
A credit rating is forward-looking, and, by its very
nature, subjective. The role of the Moody’s rating committee is to introduce
as much objectivity into the process as possible by bringing an understanding
of the relevant risk factors and viewpoints to each and every analysis. For
all sectors, the rating process is guided by a common set of basic analytical
principles, including global consistency, an emphasis on qualitative factors,
and a focus on the long-term.
For a first-time rating, the lead analyst will convene a rating
committee once all analysis has been completed. It is his/her responsibility
to include as many credit risk professionals as necessary who have the
appropriate knowledge and experience to address all of the analytical
perspectives relevant to the issuer. Factors considered in determining the
make-up of a rating committee may include the size of the issue, the
complexity of the credit, and the introduction of a new instrument. Also
taken into account are any issues that will have ramifications in the market
or any relevant sovereign issues. Moody’s goal is to integrate the
decision-making process on a global basis, to facilitate worldwide ratings
consistency.
The role of the lead analyst at the rating committee meeting is to
present the rating recommendation and rationale, and to ensure that all
relevant issues related to the credit are presented and discussed. The
discussions of Moody’s rating committee are strictly confidential, and only
Moody’s analysts may serve on them.
To download Moody’s rating methodology report, Opening The Black
Box: The Rating Committee Process at Moody’s, in Adobe Acrobat format,
click HERE.
3) Rating Process Timeline
Moody’s rating process, from the time of the
preliminary discussion to the public release of the rating, takes
approximately 60-90 days. However, Moody’s is sensitive to issuers’ needs and
timing concerns, and will be as flexible and responsive as possible in order
to accommodate tighter financing schedules and other requirements.
4) Rating Dissemination and Publication
Once the rating committee has made its decision, the
issuer will be informed of the rating and Moody’s rationale. For a public
rating, the new rating is distributed by press release simultaneously to the
major financial media worldwide. This press release will also appear on www.moodys.com.au and www.moodys.com.
5) Right of Refusal of the Moody’s Rating in Australia
Moody’s provides first-time Australian rating
applicants with the ability to determine whether their ratings will be made
public, subject to certain limitations, in the event of a debt issuance by
the applicant in any of the international capital markets at a later date. If
Australian applicants choose not to have their rating published, then both
Moody’s and the applicant will keep the rating confidential. Companies will
not be permitted to disclose their Moody’s rating on a selective basis.
6) Treatment of Confidential Information
Moody’s recognises that an issuer’s trust in the
confidential nature of the rating relationship is an essential component of
the rating process. Confidential information will not be publicly disclosed,
but, if relevant, will be used in the formulation of the public rating
opinion.
To download Moody’s rating methodology report, Moody’s Practice
with Respect to Hypothetical Situations or Confidential Information, in
Adobe Acrobat format, click HERE.
7) On-Going Relationship
Following assignment and publication of the rating,
Moody’s will meet with management at least annually, or more frequently as
events and industry developments warrant. The Moody’s analyst will maintain
regular contact with the issuer both electronically and via the telephone,
and will be available at all times to respond to an issuer’s needs or
questions.
Following publication of the press release announcing the initial
assignment of the rating, Moody’s will publish quarterly summary opinions on
the issuer. For certain very active issuers, an annual in-depth analysis will
also be published. Press releases will be issued to announce any subsequent
rating actions or outlook changes.
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MOODY’S RATING METHODOLOGY
Moody's analyses all relevant risk factors and viewpoints in arriving at a
rating opinion. Several analytical principles guide the process, including:
1. Focus on the long term – Moody’s analytical focus is on
fundamental factors that will drive an issuer's long-term ability to meet debt
payments, such as major economic downturns, a radical change in management
strategy, or major regulatory developments. The ratings are not intended to
ratchet up and down with business or supply-demand cycles or to reflect
short-term market movements.
2. Emphasis on stability and predictability of
cash flow – One of Moody’s main analytical concentrations is on
understanding the drivers of cash flow generation and, in particular, the
predictability and sustainability of cash flow. Moody’s will conduct financial
analysis to determine an issuer’s cash flow resilience in the event of an
economic downturn.
To download Moody’s rating methodology report, Industrial
Company Rating Methodology, in Adobe Acrobat format, click HERE.
Specific risk factors likely to be weighed in a
given rating will vary considerably by sector. Detailed methodology reports
for all major sectors that we follow can be obtained in the Rating
Methodologies section of this site.
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WHAT TO EXPECT FROM THE MOODY’S RATING RELATIONSHIP
Moody’s understands that issuers want timely and clear responses to their
questions and concerns. These are essential elements for a positive
professional relationship. To that end, we have developed some best practices
for our analytical teams:
· The Moody’s
analytical team will contact you ahead of meetings to let you know our agenda
and to seek your agenda issues, tell you who will be attending from Moody’s,
and confirm the time and place of the meeting.
·
We will come prepared, having read recent
materials about your organisation, such as the presentation book for the
meeting and the quarterly statement.
· We will
strive to ensure that you know where we stand on key credit issues for your
organisation (both the strengths and challenges), our credit rating outlook,
and the most important factors of our analysis.
· We will
strive to ensure that you are familiar with our analytical methodologies.
· We will
listen carefully to your views on your firm and your industry.
· We will
keep open minds.
· We will
answer your questions as fully and promptly as we can.
· We will
understand your securities issuance and other deadlines, and strive to meet
them.
· We will
follow up after meetings to ensure matters remain on track, and your
questions have been answered.
Moody’s asks issuers to let us know how we measure up on these commitments.
Subsequent to most rating meetings, issuers receive a feedback form. We want
to know an issuer’s opinion, to continuously ensure we provide the highest
quality rating agency service.
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THE BENEFITS OF A MOODY’S RATING
There are several ways in which investors use
ratings that, in turn, provide value to issuers. For many investors, ratings
are a critical element in pricing securities and are often used as a
benchmark for setting investment guidelines. With dependable, globally
comparable opinions on credit risk in hand, institutions may be open to a
wider variety of securities investments from a broader array of firms.
1) Wider Access to Capital
Moody’s credit opinions are widely disseminated,
broadly used and clearly understood by institutional investors in Australia
and throughout the world, making an issuer’s debt more attractive to a wider
range of potential buyers. In today’s global markets, a rating is effectively
a “credit passport” that can provide access to both domestic and
international pools of debt capital.
2) Financing Flexibility
This wider market access typically translates into
reduced funding costs, particularly for higher-rated issuers. The credibility
of Moody’s ratings may also allow rated issuers to enter the capital markets
more frequently and more economically and to sell larger offerings at longer
maturities.
3) Market Stability
Moody’s ratings and research reports help to
maintain and stabilise investor confidence, especially during periods of
market stress. For example, a news item could adversely affect the prices of
a company’s outstanding bonds, even if the news has no real impact on the
bonds' long-term creditworthiness. The reassurance of a Moody’s rating and
accompanying analysis of the situation can help to alleviate investor
concerns about this type of “headline risk”.
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