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      Scope proposes updates to its aviation finance rating methodology and calls for comments
      WEDNESDAY, 05/07/2023 - Scope Ratings GmbH
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      Scope proposes updates to its aviation finance rating methodology and calls for comments

      Scope Ratings today proposes an update to its Aviation Finance Rating Methodology and calls for comments. The core principles of the rating approach remain unchanged and the proposed methodology update would have no impact on existing ratings.

      The agency calls for comments from market participants by 5 August 2023.

      The proposal contains the following amendments:

      • changes to the repossession and remarketing costs used in the calculation of recovery rates;
         
      • changes to repossession time assumptions to calculate recovery rates;
         
      • addition of a new section clarifying the treatment of interest rate and foreign exchange rate risk;
         
      • expansion of the counterparty risk section to clarify the application of Scope’s Counterparty Risk Methodology in the context of aviation finance transactions;
         
      • addition of a reference to the General Project Finance Rating Methodology to clarify the analysis of legal and tax risks;
         
      • addition of an ESG section to clarify the environmental, social and governance factors that are analysed when applying this methodology;
         
      • addition of a reference to the General Structured Finance Methodology to clarify the treatment of a probability of default that is considered high relative to the expected loss; and
         
      • various clarifications and editorial changes.

      The main change proposed is to update the repossession and remarketing costs used to calculate the net proceeds from the sale of an aircraft, and therefore the recovery rates. We propose to update the assumptions to appropriately reflect cost inflation. Scope will continue to update these assumptions from time to time as appropriate.

      Scope invites issuers, investors and other interested parties to comment on the methodology by 5 August 2023, as part of the agency’s ongoing commitment to transparency and open dialogue with market participants.

      Please send your comments to consultation@scoperatings.com.

      Scope will review and publish the content of any written response in accordance with regulatory requirements, unless the respondent has specifically requested confidentiality.

      Download the methodology here or from www.scoperatings.com.

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