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Coface Credit Rating

Explore Coface Credit Rating Scale, guidelines for using ratings effectively, CCR production standards, types of CCRs, and their diverse applications in risk management. Analyze CCR with figures, quick ratings, derived ratings, and statistical reporting for credit insurance activities.

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Coface Credit Rating

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  1. Aman Union Seminar Coface Credit Rating Gregory Mongrolle, Lead Analyst – Middle-East 04 04 2011

  2. Coface Credit Rating - Agenda • Coface Credit Rating (CCR) Scale • Use of ratings for Coface • Lists and types of companies to be rated • CCR Production Standards: Main Principles • Types of CCRs • CCR with figures • Quick Ratings • Derived Ratings • Ratings in the Middle-East • Breakdown by countries • Countries covered

  3. Coface Credit Rating Scale

  4. Use of Ratings for Coface (1/2) Predictive of Default Rates

  5. Use of Ratings for Coface (2/2) • Improving risk management on significant exposures in credit insurance • 35% of Coface exposure is rated • Tool for monitoring risk (discriminating risk in a portfolio, actions during crisis…) • Calculating RWE (Risk Weighted Exposure) by confirming scores • Permit to limit access to high risk products (minimum ratings for bonds, single risk/buyer, factoring…) • Derived uses: Probabilities of defaults, expected average loss + PMLs • Statistical reporting on credit insurance activities • Detecting unusual risks (high PMLs) – Solvency 2 • Adapting the reinsurance system • Calculating our economic capital requirement • Improving our pricing

  6. CCR Production Standards: Main Principles • The production of CCRs is the mission of the Rating Line • Risk management in Credit Insurance is the unique use of CCRs • External Communication, even with the rated company, is forbidden • The production process integrates contacts as often as possible with the rated companies to update figures and collect in-depth information. Additional information is collected from other public and confidential sources, proprietary to Coface or not • Rating Analysts monitor the credit risk on rated companies • Decision process requires the involvement of (at least) two pairs of eyes or a Rating Committee

  7. Lists & types of companies to be rated • Large existing exposure in credit insurance: • Group of buyers with exposure > EUR 12Mn • Buyers with exposure > EUR 6Mn #14,000 companies to be rated (based on 31/12/10 exposure) • Spot Ratings • For large POTENTIAL limit: No need for rating • For specific covers (as per UW standards) such as bonds, ceding risk for factoring, single buyers, single risks • By rating lines • By BRE for Unistrat applications

  8. Types of CCRs: CCR with figures (1/2) • Use of Ratios • Evolution Ratios • Evolution of Turnover • Evolution of Turnover compared to the evolution of Fixed Assets • Evolution of Turnover / (Current Liabilities – Cash) • Evolution of Operating margins • Profitability and Economic efficiency Ratios • Net and Operating margin • Return on Assets • Interest Coverage Ratio • Structure Ratios • Leverage Ratio • Debt Repayment Time ratio • Liquidity Ratios

  9. Types of CCRs: CCR with figures (2/2) • Statistical Corrections • Country Factor • Industry Factor • Size Factor • Qualitative Corrections • The activity and the market structure (e.g. competition, cyclicality, capital intensive, price driven market) • Company’s specific position (e.g. leadership, upward trend in the order book, supplier or client dependence) • Production & Products (i.e. internal and external constrains) • Financing policy and contingencies (e.g. evolution of indebtness, source of financing, payment incidents) • Shareholder, Management & the State

  10. Type of CCRs: Derived Rating (CCR derived from related company) Coface thinks that in some cases it uses a rating as reference for closely linked companies/groups • When rating a subsidiary (for which no figures are available) of a rated Group • If links between the companies are qualified as strategic investment or core business the Group rating can be extended to the subsidiary • Corrections may be applied making the rating deviate slightly from the Group’s rating (around 2 notches) • When rating a Group (for which we have no figures), but we have ratings on core business(es) / strategic subsidiaries • If company(ies) rates represent a significant portion of the sales/assets, rating of subsidiary (weighted average rating of subsidiaries) may be applied to the group • Corrections may be applied to other facts known by the analysts and not reflected in the subsidiaries ratings

  11. Types of CCRs: Quick Rating (CCR without figures) No figure & no grid may be used as a reference • Public buyers • Country rating • Experience • Stand-alone company • Country Rating • Experience • Assessment of the company’s environment • Assessment of the size of the company • Assessment of the company’s financial situation (e.g. doubts over indebtness)

  12. Ratings in the Middle-East: Breakdown by countries

  13. Ratings in the Middle-East: Countries covered Q&A

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