Training on sovereign risk credit analysis, October 24

Pricing Policy for Rating Services of Analytical Credit Rating Agency (Joint-Stock Company)

1. General Provisions

1.1. The present Policy defines the main principles of pricing used by ACRA for Rating Services.

1.2. ACRA is a commercial organization providing professional services on paid basis related to preparation, assigning, affirmation, revision, withdrawal, of Credit ratings and Credit Rating Outlooks in accordance with Federal Law dated July 13, 2015, No 222-FZ “On the Activities of Credit Rating Agencies in the Russian Federation, On the Amendment to Article 76.1 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and the invalidation of certain provisions of legal acts of the Russian Federation” (hereinafter, the Law on rating agencies).

1.3. This Policy shall be published on ACRA’s official website no later than three calendar days from the date of its approval by the Board of Directors.

2. List of Terms and Definitions

2.1. ACRA — Analytical Credit Rating Agency (Joint-Stock Company).

2.2. CEO — an ACRA employee performing the functions of the sole executive body.

2.3. Credit Rating — ACRA’s opinion on the ability of a Rated Entity to meet its financial obligations (creditworthiness, financial reliability, financial stability) and/or on the credit risk of its specific financial obligations or instruments, expressed through a rating category.

2.4. Credit Rating of Structured Finance Instruments and Obligations — ACRA’s opinion on the probability and magnitude of losses related to rated obligations of an SPV (or similar issuers and Rated Entities) that depend on the ability of this SPV to fulfill its financial liabilities secured by monetary claims and/or other property owned by this SPV and/or third parties. A credit rating of Structured Finance Instruments and Obligations is one of Credit Rating types.

2.5. Credit Rating of Financial Liability — ACRA’s opinion on the capability of the Rated Entity to meet its financial obligations on specific debt financial instruments or financial debt, as reflected by means of a rating category under a specific rating scale.

2.6. Methodology (Rating Methodology) — an ACRA internal document, which defines the principles and forms of the analysis of quantitative and qualitative factors and provides guidance on the application of models and key rating assumptions, which lay the basis for decisions on Rating Actions.

2.7. Rating Object — a Rated Entity and/or its financial obligations (creditworthiness, financial reliability, financial sustainability) or financial instruments.

2.8. Credit Rating Outlook — ACRA’s opinion on a likely credit rating change within a certain time period (typically 12 to 18 months). Credit rating outlooks are not assigned to Credit Ratings of Structured Finance Instruments and Obligations, nor to Credit Ratings of Financial Liability.

2.9. Rating Services — services provided in the course of implementation of Rating Activities.

2.10. Rating Activities — professional activities, performed on an ongoing basis, in aggregate consisting of the preparation, assignment, affirmation, revision, withdrawal of Credit Ratings, and Credit Rating Outlooks, based on the analysis of information in accordance with the Methodology and accompanied by the distribution of information on assigned Credit Ratings and Credit Rating Outlooks in any way, that ensures access to this information by general public. 

2.11. Rated Entity — a legal or public-law entity whose ability to meet its financial obligations (creditworthiness, financial reliability, financial stability) is directly or indirectly assessed in a Credit Rating.

2.12. Compliance and Internal Control Service — an ACRA unit functioning as an internal control body in accordance with the Law on rating agencies and bylaws of the Bank of Russia.

2.13. Business Development Unit — an ACRA unit in charge of making contracts for provision of Rating Services and Additional Services and attracting new customers.

3. Main Pricing Principles

3.1. When formulating its pricing policy and specifying price parameters of specific customer agreements ACRA takes all possible measures to ensure their compliance with the Russian Law and best international practices in this field.

3.2. The clients of ACRA are legal or public-law entities interested in obtaining and maintaining Credit Ratings.

3.3. The size of the fee for Rating Services shall not depend on the level of the assigned Credit Rating or Credit Rating Outlook, or on the consent of the Rated Entity with the level of the assigned Credit Rating or Credit Rating Outlook.

3.4. Relations between ACRA and its clients are formalized in a contract, based on a standard agreement, containing, inter alia, the pricing terms and conditions. When Credit Ratings are assigned to structured finance instruments and obligations, the contract may be significantly modified depending on the specific transaction type.

3.5. The cost of Rating Services is set by the Price List for Rating Services (hereinafter, the Price List), which is approved by ACRA CEO in coordination with the Compliance and Internal Control Service, as stipulated by ACRA’s internal documents and the requirements of this Policy.

3.6. The cost of Rating Services shall be set taking into account the following circumstances: (1) the type of the Rating Object; (2) the industry the Rating Object belongs to; (3) the volume of assets and liabilities of the Rating Object; (4) structural complexity of the company; (5) regions of presence of the Rated Entity; (6) contractual deadlines; (7) complexity of rating analysis and the need to perform extra work related to the Rated Object as part of this analysis.

3.7. In addition to p. 3.6., the pricing of assigning a Credit Rating of Financial Liability is also based on the issue volume and issue frequency of the issuer; it is subject to a possible maximum and is set within limits outlined in the Price List.

3.8. The pricing of Credit Ratings of Structured Finance Instruments and Obligations depends proportionally on the rated issues amount under the transaction and is subject to limitation of its maximum and minimum values within the boundaries defined by the Price List, but may also include additional fees associated with larger volume or greater complexity of work related to the analysis of peculiarities of such transactions.

3.9. The pricing of maintaining Credit Ratings of Structured Finance Instruments and Obligations is subject to limitation of its maximum and minimum values depending on the parameters of the deal and within the boundaries defined by the Price List. ACRA may charge a fee for termination of a contract for assigning and maintaining structured product credit ratings, with the amount of such fee being set in the Price List.

3.10. Rating Services shall be provided by ACRA after the prepayment of the entire amount under the contract, except for cases stipulated by the Federal Law dated July 18, 2011, No 223-FZ “On procurement of goods, works and services of certain kinds of legal entities” and the Federal Law dated April 5, 2013, No 44-FZ “On the contract system in the procurement of goods, works, services for state and municipal needs.”

3.11. Internal procedures and documents adopted by ACRA, including ACRA’s Code of Ethics and Professional Conduct, ensure that commercial operations, such as advertising, client engagement, price-setting and price negotiations, are fully isolated from processes of Rating Operations and Methodology development. Negotiations of price parameters of contracts, their potential changes in either direction, other commercial aspects, are performed by separate commercial units of ACRA and have no influence whatsoever on the work of the Rating Analysts, their compensation, or their opinions or decisions. 

4. Final Provisions

4.1. This Policy shall come into effect upon its approval by the Board of Directors of ACRA.

4.2. Any changes or additions hereto must be made in writing, documented and agreed with the Compliance and Internal Control Service and approved by the Board of Directors of ACRA.

4.3. Any deviations from the requirements of this Policy leading to a violation of legal acts of the Russian Federation and Bank of Russia requirements are not allowed. Should any changes to the legislation of the Russian Federation or Bank of Russia bylaws come in contradiction with certain clauses of this Policy, such clauses shall become invalid, and until they are duly amended, ACRA employees shall be governed by the legislation of the Russian Federation.

4.4. Employees of ACRA must inform the Compliance and Internal Control Service about any violations of this Policy, as well as about any violations of requirements of legal acts of the Russian Federation or Bank of Russia requirements.

4.5. This Policy shall be revised on an as per needed basis, but not less frequently than once every three years.

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