The proposed new methodology clarifies and further refines Scope’s analytical approach on investment holding companies. A comprehensive set of business risk and financial risk rating drivers improves credit differentiation as it captures investment holding companies’ specifics in the credit risk evaluation. The methodology is predominantly applicable to European investment holding companies and will apply to companies currently only rated based on the General corporate rating methodology. It will have a limited positive rating impact on investment holding companies currently rated by Scope. As per its policies, Scope will place under review the issuer impacted by the new methodology as soon as practically possible. The reviews and changes to the affected ratings shall be completed within six months.

The methodology can be downloaded here or on www.scoperatings.com.

Methodology highlights

• Scope’s methodology defines main criteria to differentiate investment holding companies from a corporate group or an operating holding company such as i) the level of operational integration; ii) the investment approach; and iii) influence over core holdings.
   
• The assessment of an investment holding company’s competitive positioning takes into account i) the weighted average industry portfolio risk; ii) portfolio sustainability; iii) portfolio diversification; iv) portfolio liquidity; and v) investment philosophy.
   
• Scope’s assessment of investment holding company’s financial strength is based on credit metrics calculated using the rated entity’s standalone financial accounts as the rated entity may be unable to access a portfolio company’s cash flow or liquidity or have no influence over its dividend policy.
   
• The financial risk profile assessment of an investment holding company focuses on recent and forward-looking financial data. The key rating factors are the total cost cover, loan/value ratio and the liquidity assessment, especially for non-investment grade issuers.

Scope evaluated the relevance, significance and applicability of comments submitted by market participants during the request-for-comments period, which ended on April 4, 2023. No additional changes have been introduced as a result. The Feedback report can be downloaded here or on www.scoperatings.com.