Standardization of Rating Symbols and Definitions

 

 

SEBI vide circular dated 15th June, 2011 had issued the detailed guidelines to all the Rating Agencies which reads as follows :

 

1.  It has been observed that the Credit Rating Agencies (CRAs) registered with
      SEBI use different rating symbols and definitions.

2.  It has been felt that there need to be common rating symbols and definitions
      (i) for easy understanding of the rating symbols and their meanings by the
      investors,  and (ii)  to  achieve  high  standards  of  integrity  and  fairness  in

ratings.

3.  The  issue  was  discussed  in  the  meeting  of  Corporate  Bonds  and
      Securitisation Advisory Committee of SEBI. The Committee recommended
      that the rating symbols and their definitions should be standardised.

4.  Pursuant to the above, in consultation with the CRAs and considering the
      international practices, standardised symbols and their definitions have been
      devised for the following:

 a)  Long term debt instruments;

b)  Short term debt instruments;

c)  Long term structured finance instruments;

d)  Short term structured finance instruments;

e)  Long term mutual fund schemes; and

f)  Short term mutual fund schemes.

5.  The new symbols and definitions as given in Annexures 1-6 shall henceforth
      be used for the new ratings/ reviews by the CRAs.

 6.  For existing outstanding ratings, the CRAs shall:

(i)     disclose new rating symbols and definitions on their websites;

(ii)    update their rating lists on their websites; and

(iii)  inform  their  clients  about  the  change  in  the  rating  symbols  and
         definitions  and  specifying  that  this  should  not  be  construed  as  a
         change in the ratings.

 

7.  The CRAs shall ensure compliance with the requirements specified at Clause
      6 above, as early as possible but not later than 4 months from the date of
      issuance of this circular.

 

8.  The CRAs shall communicate to SEBI, the status of the implementation of the
      provisions of this circular by October  31,  2011. They shall also place the
      compliance status of this circular before their Boards.

 

9.  This circular is issued in exercise of the powers conferred by Section 11 (1) of
      Securities and Exchange Board of India Act, 1992 read with the provisions of
      regulations 13, 18 and 20 of SEBI (Credit Rating Agencies) Regulations, 1999
      to  protect  the  interest  of  investors  in  securities  and  to  promote  the
      development of, and to regulate, the securities market.

 

Yours faithfully,

              Prasanta Mahapatra
          Deputy General Manager

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ANNEXURE 1

I.          Rating Symbols and Definitions for Long Term Debt Instruments    Long  term  debt  instruments:  The  instruments  with  original  maturity exceeding one year

Rating symbols should have CRA’s first name as prefix

 AAA - Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

 AA - Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

 A - Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

BBB - Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

BB - Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

 B  -  Instruments  with  this  rating  are  considered  to  have  high  risk  of  default regarding timely servicing of financial obligations.

C - Instruments with this rating are considered to have very high risk of default regarding timely servicing of financial obligations.

 D - Instruments with this rating are in default or are expected to be in default soon.

 Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories AA to C. The modifiers reflect the comparative standing within the category.

 

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ANNEXURE 2

 

II.         Rating Symbols and Definitions for Short Term Debt instruments   Short term debt instruments: The instruments with original maturity of upto one year

 Rating symbols should have CRA’s first name as prefix

 A1 - Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.

 A2 - Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.

 A3  - Instruments with this rating are considered to have moderate degree of
safety regarding timely payment of financial obligations. Such instruments carry
higher credit risk as compared to instruments rated in the two higher categories.

A4- Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

D  - Instruments with this rating are in default or expected to be in default on maturity.

 Modifier {"+" (plus)} can be used with the rating symbols for the categories A1  to  A4.  The  modifier  reflects  the  comparative  standing  within  the category.

 

 

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ANNEXURE 3

 III.        Rating Symbols and Definitions for Long Term Structured Finance Instruments

Long term structured finance instruments: The instruments with original maturity exceeding one year

 Rating symbols should have CRA’s first name as prefix

AAA  (SO)  - Instruments with this rating are considered to have the highest degree  of  safety  regarding  timely  servicing  of  financial  obligations.  Such instruments carry lowest credit risk.

 AA (SO)  - Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

 A (SO) - Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

 BBB (SO) - Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

BB(SO) - Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

 B(SO) - Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations.

 C (SO) - Instruments with this rating are considered to have very high likelihood of default regarding timely payment of financial obligations.

D  (SO)  - Instruments with this rating are in default or are expected to be in default soon.

 Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the  categories  AA(SO)  to  C(SO).  The  modifiers  reflect  the  comparative standing within the category.

 

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ANNEXURE 4

IV.            Rating Symbols and Definitions for Short Term Structured Finance Instruments

Short term structured finance instruments: The instruments with original maturity of upto one year

 Rating symbols should have CRA’s first name as prefix

A1 (SO) - Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligation. Such instruments carry lowest credit risk.

 A2 (SO) - Instruments with this rating are considered to have strong degree of safety regarding timely   payment of financial obligation. Such instruments carry low credit risk.

 A3 (SO) - Instruments with this rating are considered to have moderate degree of
safety regarding timely payment of financial obligation. Such instruments carry
higher credit risk as compared to instruments rated in the two higher categories.

 A4 (SO) - Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligation. Such instruments carry very high credit risk and are susceptible to default.

D (SO) - Instruments with this rating are in default or expected to be in default on maturity.

 Modifier {"+" (plus)} can be used with the rating symbols for the categories A1(SO) to A4(SO). The modifier reflects the comparative standing within the category.

 

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ANNEXURE 5

V.             Rating Symbols and Definitions for Long Term Debt Mutual Fund Schemes

Long term debt mutual fund schemes: The debt mutual fund schemes that have an original maturity exceeding one year.

 Rating symbols should have CRA’s first name as prefix

AAAmfs - Schemes with this rating are considered to have the highest degree of safety regarding timely receipt of payments from the investments that they have made.

 AAmfs - Schemes with this rating are considered to have the high degree of
safety regarding timely receipt of payments from the investments that they have
made.

 Amfs - Schemes with this rating are considered to have the adequate degree of
safety regarding timely receipt of payments from the investments that they have
made.

 BBBmfs - Schemes with this rating are considered to have the moderate degree of safety regarding timely receipt of payments from the investments that they have made.

BBmfs  -  Schemes  with  this  rating  are  considered  to  have  moderate  risk  of
default regarding timely receipt of payments from the investments that they have
made.

Bmfs  - Schemes with this rating are considered to have high risk of default regarding timely receipt of timely receipt of payments from the investments that they have made.

 Cmfs - Schemes with this rating are considered to have very high risk of default regarding timely receipt of timely receipt of payments from the investments that they have made.

 Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the  categories  AAmfs  to  Cmfs.  The  modifiers  reflect  the  comparative standing within the category.

 

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