Borrowers in the global debt market face a crucial hurdle in raising funds cost-effectively, and sometimes even in accessing
funds. That hurdle is achieving and maintaining the best possible rating from the rating agencies, mainly Moody's Investors
Service, Standard & Poor's Ratings Group, and Fitch Ratings.
Sovereigns, financial institutions, utilities and global corporations are encountering volatile credit markets and an investor
community that is ever more sensitive to credit ratings and rating changes. At the same time, the importance of ratings
is growing as investors and counterparties increasingly rely on ratings as key decision tools.
Rating Agency Scrutiny
Issuers cannot avoid facing the scrutiny of rating agencies,
which often present an impenetrable facade to the borrowing community. The agencies often resist two-way information
flow, respond inadequately to issuer concerns, and use unclear and subjective criteria in their rating judgments. All
this makes the rating process seem arbitrary and mysterious when it should be clear and simple.
These are the facts of rating life. Until 1991, a borrower confronting these conditions had few alternatives.
There was no independent source of advice on Wall Street that could explain the agencies’ thinking, assist borrowers
through the rating process, and raise the odds for a favorable rating decision, thereby lowering borrowing costs. Investment
bankers frequently offer to guide prospective borrowers through the rating agency gauntlet, but the bankers’ main objective
is to earn an underwriting fee, not to optimize the client’s ratings.
But Now There’s GIA
Issuers can now call on Global Investment Advisors,
Inc. (GIA) — a unique capital markets firm dedicated since 1991 to helping issuers understand the process, exercise
their rights, achieve the best rating possible, and lower the cost of their debt.
Borrowers’ Difficulties in the Rating Process
In GIA’s experience,
success in the rating process involves more than an issuer’s merely following agency rules and requests. Success requires
- Understand the agencies’ real analytical needs which go beyond the criteria they publish.
- Uncover the agencies’ real concerns about their creditworthiness
- Take a proactive posture in managing their ratings
Without taking these steps, issuers tend to be at a natural disadvantage vis-à-vis the agencies. The agencies make
up the rules and issuers tend to acquiesce in the uneven playing field.
Borrowers, especially first-time entrants to the capital markets, undeniably have difficulties with the whole rating process.
There are two reasons for this:
- In spite of their voluminous websites, the rating agencies are not as clear about their procedures and methods as they
could be, and certainly not as transparent as they demand that issuers be. Issuers do not understand what information the
agencies really need—as opposed to what the agencies ask for. Issuers do not know the weight the agencies place on key
variables in the analysis. We have found that, even after years of experience with the agencies, most issuers still do not
understand the agencies’ decision criteria and methods.
- The rating process has a large element of subjectivity built into it. Ratings are not just the result of ratios and peer
comparisons. Issuers do not know how to handle this non-quantifiable element of ratings…and the rating agencies won’t
tell them "yes"
GIA clears up this confusion and reduces issuer fear and uncertainty.