Techniques for Effectively Managing Credit Relationships: Achieving the “Right” Rating

1. Techniques for Effectively Managing Credit Relationships: Achieving the “Right” Rating To Advance: Click Screen Anywhere or Click Next To Return to Web Page: Click “Back” on the Internet Search Bar Next Page

2. What is the Right Rating? The “Right Rating” for any organization is the rating that allows it to implement its business strategy without financial constraints From a corporate governance perspective, management should seek to achieve a rating level that is sustainable given its business risk and strategy. Previous Page Next Page

3. Keys to Establishing & Maintaining Credibility with Rating Agencies • Continuity • Follow Through • Balance • Transparency

4. Meeting the Rating Agencies • Annual, semi-annual or quarterly meetings are main communication forums • Opportunity for company to tell its story and for agency to ask its questions • But also a chance for dialogue and for company to question the agency • Thoughtful and organized presentations establish a good basis for communication

5. Credible Written Presentations Will Include: • A clear statement of business purpose and objectives • An analysis of business segments - candid evaluation of competitive strengths & weaknesses - key strategies • Explanation of accounting policies, financial policies and strategies )

6. Credible Written Presentations Will Include: • A discussion of financial goals and expectations 1) explain key assumptions (macro/micro) 2) build bridges from the past 3) provide evidence of flexibility & contingency planning • Appropriate comparisons (slide 2 of 2)

7. Successful Meetings Require • Advance preparation • Having the right people present • Expanding on written materials, not reading them • Answering questions directly or not at all • Asking questions

8. Company’s Agenda 1) Rapid growth 2) Efforts to enhance shareholder value 3) external influences on performance 4) belittle competitors 5) success of last financial deal Rater’s Agenda 1) Cash flow predictability 2) evidence of contingency planning 3) take responsibility for performance 4) respect competition 5) appropriateness of financial policies Talking But Not Communicating

9. Current Rating Agency “Hot Buttons” • Corporate Governance • Operational Risk • Liquidity & Funding Risks

10. Ownership Issues 1) transparency of ownership 2) owner’s influence Relationships with Financial Stakeholders 1) shareholder meeting & voting procedures 2) protection of minority owners’ rights Information Disclosure & Transparency 1) Quality of disclosure 2) Timeliness & ease of access to information 3) Independence & credibility of auditors Board of Directors 1) Structure 2) Responsibilities 3) Effectiveness Corporate Governance

11. Operational Risk • The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events - Basel definition

12. Internal fraud External fraud Employment practices & workplace safety Clients, products & business practices - i.e. fiduciary breaches, “rogue” trading, money laundering Damage to physical assets Business disruption & system failures Execution, delivery & process management failures Operational Risk

13. Liquidity & Funding Risks • Internal liquidity - core earning power • Quality of external liquidity supports • Dependence on purchased funds • Dependence on refinancing to meet maturing debt • Magnitude and timing of contingent cash demands, particularly triggers

14. Conclusion • Ratings have always been a balance between quantitative and qualitative inputs • The trend, however, has increasingly been towards qualitative inputs being given greater weight • Therefore, company management can and will have a greater effect on rating decisions, both positively and negatively