Training on Forecasting, April 7–8

Credit Ratings: Meaning and Use

This section features information on the ACRA rating process, including its rating scales and rating definitions, as well as details of the regulatory practices of using ACRA ratings in normative and legal acts of the Russian Federation.

Rating scales

National rating scale for the Russian Federation

The ACRA national rating scale is used exclusively to assign underlying credit ratings and is not used to assign credit ratings to structured finance instruments and obligations. The underlying credit ratings include credit ratings assigned to rated entities (or to their financial obligations, or to individual financial instrument issuance programs) representing the corporate, banking, nonbank financial, and insurance sectors, as well as regional and municipal authorities, except ratings assigned to structured finance instruments and obligations.

The ACRA national rating scale allows to compare only the credit ratings assigned by the Agency within the Russian Federation.

In economic terms, the credit ratings assigned by ACRA under the national scale reflect a relative default probability of rated entities (or securities) when compared to the highest possible creditworthiness level in the Russian economy – the one that ACRA embeds in debt obligations of the Government of the Russian Federation and certain derivatives thereof.

It should be noted that in some cases, such as credit rating assignment to individual financial instruments, the scale reflects a relative probability assessment of a real default on a financial instrument, as well as that of a loss recovery the holders of such instrument can potentially count on in the event of bankruptcy.

Table 1. ACRA national rating scale for the Russian Federation

Category Rating Description

AAA

AAA(RU)

Maximum creditability level assigned to rated entities, securities issues, or financial liabilities. The highest credit rating under the national scale of the Russian Federation, according to the Agency. The credit rating of financial liabilities of the Government of the Russian Federation.

AA

AA+(RU)

High creditability level compared to other rated entities, securities, or financial liabilities in the Russian Federation; although, according to ACRA, slightly lower than  AAA(RU).

AA(RU)

AA-(RU)

A

A+(RU)

Moderately high creditability level compared to other rated entities, securities or financial liabilities in the Russian Federation; however, somewhat sensitive to adverse changes in the business, financial, and economic environment inside the Russian Federation.

A(RU)

A-(RU)

BBB

BBB+(RU)

Moderate creditability level compared to other rated entities, securities, or financial obligations in the Russian Federation, with a higher sensitivity to adverse changes in business, financial and economic environment inside the Russian Federation.

BBB(RU)

BBB-(RU)

BB

BB+(RU)

Moderately low creditability level compared to other rated entities, securities, or financial liabilities in the Russian Federation. Creditability is stable in the short term, but there is high sensitivity to adverse changes in the business, financial, and economic environment inside the Russian Federation.

BB(RU)

BB-(RU)

B

B+(RU)

Low creditability compared to other rated entities, securities, or financial liabilities in the Russian Federation. At this stage, the entity can still fulfil its debt liabilities in a full and timely fashion but is highly vulnerable to unfavorable commercial, financial, and economic conditions inside the Russian Federation.

B(RU)

B-(RU)

CCC

CCC(RU)

Very low creditability level compared to other rated entities, securities, or financial liabilities in the Russian Federation. There is a possibility of failure by the Rated Entity to fulfil its debt liabilities in the short term. Timely fulfillment of debt obligations is largely dependent upon favorable commercial, financial, and economic environment inside the Russian Federation.

СС

CC(RU)

Very low creditability level compared to other rated entities, securities, or financial liabilities in the Russian Federation. There is a high probability of the Rated Entity defaulting on its debt liabilities in the short term. Timely fulfillment of debt liabilities hinges on favorable external economic and financial environment inside the Russian Federation, as well as on good creditor relations.

С

C(RU)

Very low creditability level compared to other rated entities, securities, or financial obligations in the Russian Federation. There is a high probability of the Rated Entity defaulting on its debt liabilities in the short term. Timely fulfillment of debt liabilities is highly unlikely without concessions from creditors.

RD

RD(RU)

The Rated Entity is controlled (or significantly influenced) by the regulator. As a rule, in such cases, the regulator may determine the priority of liabilities or suspend payments to creditors.

SD

SD(RU)

The Rated Entity is in default on one of its financial liabilities, but the Agency believes that the Rated Entity will continue to timely service its other financial liabilities.

D

D(RU)

The Rated Entity is in default on its financial liabilities.

Source: Key concepts used by the Analytical Credit Rating Agency within the scope of its rating activities

Structured finance sector national rating scale for the Russian Federation

The indicator (RU.sf) that is used to rate structured finance instruments and obligations indicates that such instruments and obligations, as well as underlying securities, may have different risk profiles.

The addition of this indicator (RU.sf) is intended to eliminate any supposition that credit ratings of structured finance instruments and obligations and underlying credit ratings that stand on the same levels of the corresponding rating scales possess equal credit quality.

Table 2. The structured finance sector national rating scale for the Russian Federation

Category Rating Description

AAA

AAA(ru.sf)

Structured finance liabilities or instruments with the AAA(ru.sf) rating are considered by the Agency to have the highest credit quality under the national scale for the Russian Federation, with minimal credit risk; the credit rating of financial liabilities secured by the guarantee of the Government of the Russian Federation.

AA

AA+(ru.sf)

High level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation; however, as a rule, slightly lower than that of rated liabilities and instruments with the AAA(ru.sf) credit rating.

AA(ru.sf)

AA-(ru.sf)

A

A+(ru.sf)

Moderately high level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation, but with some sensitivity to adverse changes in the business, financial and economic environment inside the Russian Federation and to their impact on parameters of underlying assets, collaterals, and other assets securing rated structured finance liabilities and instruments, as well as operating risks.

A(ru.sf)

A-(ru.sf)

BBB

BBB+(ru.sf)

Moderate level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation, but with a higher sensitivity to adverse changes in the business, financial and economic environment inside the Russian Federation and to their impact on parameters of underlying assets, collaterals, and other assets securing the rated structured finance liabilities and instruments, as well as operating risks.

BBB(ru.sf)

BBB-(ru.sf)

BB

BB+(ru.sf)

Moderately low level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation, with little to no risk of sharp deterioration in credit quality in the short term. However, displays higher sensitivity to adverse changes in the business, financial, and economic environment inside in the Russian Federation and to their impact on parameters of underlying assets, collaterals, and other assets securing the rated structured finance liabilities and instruments, as well as operating risks.

BB(ru.sf)

BB-(ru.sf)

B

B+(ru.sf)

Low level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation. At this stage, the entity can still fulfil its debt liabilities in a full and timely fashion; however, there it is highly vulnerable to adverse business, financial and economic conditions inside the Russian Federation and their impact on the parameters of underlying assets, collaterals, and other assets securing the rated structured finance liabilities and instruments, as well as operating risks.

B(ru.sf)

B-(ru.sf)

CCC

CCC(ru.sf)

Very low level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation. There is a possibility of failure to fulfill rated liabilities in the short term. Timely fulfillment of rated liabilities depends on favorable business, financial, and economic conditions inside the Russian Federation and their impact on the parameters of underlying assets, collaterals, and other assets securing the rated structured finance liabilities and instruments, as well as measures to reduce operating risks.

СС

CC(ru.sf)

Very low level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation. There is an increased probability of default on rated obligations in the short term. Timely fulfillment of rated liabilities depends on favorable business, financial and economic conditions in the Russian Federation and their impact on the parameters of underlying assets, collaterals, and other assets securing the rated structured finance liabilities and instruments, as well as measures to reduce operating risks.

С

C(ru.sf)

Very low level of credit quality compared to other rated structured finance liabilities and instruments in the Russian Federation. There is a high probability of default on rated obligations in the short term. Timely fulfillment of liabilities is highly unlikely without attracting additional sources capable of improving credit quality and reducing operating risks.

D

D(ru.sf)

The Rated Entity (or financial liability) is in default on its structured finance liabilities.

Source: Key concepts used by the Analytical Credit Rating Agency within the scope of its rating activities

National scale for asset management company reliability ratings

The rating scale for assessing reliability of asset management companies uses the marker .am in order to emphasize the non-credit nature of ratings assigned under this scale and their incomparability with ratings assigned under the other scales used by ACRA (JSC).

Table 3. ACRA national scale for the Russian Federation for asset management companies assessment

Category Description
AAA(ru.am)
  • Maximum reliability;
  • Very low sensitivity to changes in legislation, client base, or investor pool.

AA(ru.am)

  • Very high reliability;
  • Low sensitivity to changes in legislation, client base, or investor pool.

A(ru.am)

  • High reliability;
  • Moderate sensitivity to changes in legislation, client base, or investor pool.

BBB(ru.am)

  • Sufficient reliability;
  • Sufficient sensitivity to changes in legislation, client base, or investor pool.

BB(ru.am)

  • Satisfactory reliability;
  • Medium sensitivity to changes in legislation, client base, or investor pool.

B(ru.am)

  • Low reliability;
  • High sensitivity to changes in legislation, client base, or investor pool.

CCC(ru.am)

  • Very low reliability;
  • Very high sensitivity to changes in legislation, client base, or investor pool.

SD(ru.am)

  • Unacceptably low reliability;
  • Bank of Russia has either ordered a halt on company’s activities, or limited their scope;
  • Massive client outflow.

D(ru.am)

  • Bankruptcy or license withdrawal.

 

International rating scale

ACRA’s International Rating Scale is used solely to assign base credit ratings and not to assign credit ratings to structured finance instruments and obligations.

ACRA’s International Rating Scale allows for comparing credit ratings assigned by the Agency under the international scale, at the supranational level.

Table 4. ACRA’s international rating scale

Category

 

Rating

Description

AAA

 

AAA

The highest rating. An entity or an issue of securities or a financial obligation rated AAA demonstrates the maximum creditworthiness and the minimum sensitivity to unfavorable changes in business, financial and economic conditions, either domestic or international, and other external factors.

AA

 

AA+

High creditworthiness as compared to other rated entities or issues of securities or financial obligations. Low sensitivity to unfavorable changes in business, financial and economic conditions, either domestic or international, and other external factors. In ACRA's opinion, the rating is insignificantly lower than that of entities rated AAA.

 

AA

 

AA-

A

 

A+

Moderately high creditworthiness as compared to other rated entities or issues of securities or financial obligations. Certain sensitivity to unfavorable changes in business, financial and economic conditions, either domestic or international, and other external factors.

 

A

 

A-

BBB

 

BBB+

Moderate creditworthiness as compared to other rated entities or issues of securities or financial obligations. Higher sensitivity to unfavorable changes in business, financial and economic conditions, either domestic or international, and other external factors.

 

BBB

 

BBB-

BB

 

BB+

Moderately low creditworthiness as compared to other rated entities or issues of securities or financial obligations. The creditworthiness is sustainable in the short-term, but there is high sensitivity to unfavorable changes in business, financial and economic conditions, either domestic or international, and other external factors.

 

BB

 

BB-

B

 

B+

Low creditworthiness as compared to other rated entities or issues of securities or financial obligations. The rated entity is able to perform debt obligations when due and in full, but it is highly vulnerable to unfavorable business, financial and economic conditions, either domestic or international, and other external factors.

 

B

 

B-

CCC

 

CCC

Very low creditworthiness as compared to other rated entities or issues of securities or financial obligations. The rated entity may potentially fail to perform its debt obligations in the short term. Timely performance of debt obligations largely depends on favorable business, financial and economic conditions, either domestic or international, and other external factors.

СС

 

CC

Very low creditworthiness as compared to other rated entities or issues of securities or financial obligations. There is an elevated likelihood of failure by the rated entity to perform its debt obligations in the short term. Timely performance of debt obligations depends on favorable business, financial and economic conditions, either domestic or international, and other external factors, as well as on relations with creditors.

С

 

C

Very low creditworthiness as compared to other rated entities or issues of securities or financial obligations. There is a high likelihood of failure by the rated entity to perform its debt obligations in the short term. Timely performance of debt obligations is extremely unlikely without favorable attitude of creditors.

D

 

D

A rated entity or a financial obligation is in default.

Source: ACRA

International scale of short-time credit ratings

The international rating scale of short-term credit ratings is used solely to assign base credit ratings and not to assign credit ratings to structured finance instruments and obligations.

The international rating scale of short-term credit ratings allows for comparing credit ratings assigned by the Agency under the international scale, at the supranational level.

Table 5. International scale of short-time credit ratings

Category

Description

S1+

A rated entity has the maximum creditworthiness with respect to short-term (less than a year) liabilities, and its access to liquidity and short-time funding demonstrates the minimum sensitivity to unfavorable changes in the financial and economic conditions (including those at the international level) and other factors.

S1

A rated entity has a high creditworthiness with respect to short-term (less than a year) liabilities, and its access to liquidity and short-time funding demonstrates a weak sensitivity to unfavorable changes in the financial and economic conditions (including those at the international level) and other factors.

S2

A rated entity has a moderately high creditworthiness with respect to short-term (less than a year) liabilities, and its access to liquidity and short-time funding may be sensitive to unfavorable changes in the financial and economic conditions (including those at the international level) and other factors.

S3

A rated entity has a moderate creditworthiness with respect to short-term (less than a year) liabilities, and its access to liquidity and short-time funding is sensitive to unfavorable changes in the financial and economic conditions (including those at the international level) and other factors.

B

A rated entity has a moderately low creditworthiness with respect to short-term (less than a year) liabilities, and its access to liquidity and short-time funding is exposed to unfavorable changes in the financial and economic conditions (including those at the international level) and other factors.

C

A rated entity has a very low creditworthiness with respect to short-term (less than a year) liabilities; its liabilities depend heavily on the access to liquidity and short-time funding and favorable financial and economic conditions (including the support from international lenders) and other factors.

D

A rated entity (or financial liability) is in default.

Source: ACRA

Figure1. Correlation between long-term and short-term credit ratings

AAA

 

S1+

 

 

 

 

 

 

AA+

 

 

 

 

 

 

 

AA

 

 

 

 

 

 

 

AA-

 

S1

 

 

 

 

 

A+

 

 

 

 

 

 

 

A

 

 

S2

 

 

 

 

A-

 

 

 

 

 

 

BBB+

 

 

 

 

 

 

 

BBB

 

 

 

S3

 

 

 

BBB-

 

 

 

 

 

 

 

BB+

 

 

 

 

 

B

 

 

BB

 

 

 

 

 

 

 

BB-

 

 

 

 

 

 

 

B+

 

 

 

 

 

 

 

B

 

 

 

 

 

 

 

B-

 

 

 

 

 

 

 

CCC

 

 

 

 

 

 

C

 

CC

 

 

 

 

 

 

 

C

 

 

 

 

 

 

 

D/SD

 

 

 

 

 

 

 

D

Log in

Forgot password

Sign up

Reset password

Reset password

Termsofuse

Полное использование материалов сайта разрешается только с письменного согласия правообладателя, АКРА (АО). Частичное использование материалов сайта (не более 30% текста статьи) разрешается только при условии указания гиперссылки на непосредственный адрес материала на сайте www.acra-ratings.ru . Гиперссылка должна быть размещена в подзаголовке или в первом абзаце материала. Размер шрифта гиперссылки не должен быть меньше шрифта текста используемого материала.