The updated rating methodology can be downloaded here.

The update provides refinements to Scope’s analytical approach for assigning credit ratings to government related entities (GREs). The GRE Methodology continues to be based on a qualitative, principles-based ‘segmentation-approach’ to account for the wide variety of entities and organisations, varying jurisdictions and resulting different relationships of GREs with their respective public sponsors.

Methodology highlights

Scope’s approach starts with the analysis of the strength of the relationship between the GRE and its public sponsor. Based on the GRE’s level of integration with the sponsor, Scope then chooses either the ‘Top-Down’ or ‘Bottom-Up’ approach and determines the primary driver of the GRE’s rating.

The ‘Top-Down’ approach takes the public sponsor’s rating as the starting point and then applies indicative downward notching based on Scope’s assessment of i) the ‘control and regular support’ and ii) the ‘likelihood of exceptional support’ for the GRE.

Scope’s ‘Bottom-Up’ approach starts with the assessment of the GRE’s stand-alone credit quality, and then, applies credit uplift factors. The extent of the upward notching is based on Scope’s assessment of i) the public sponsor’s ‘capacity to provide a credit uplift ’, and ii) the public sponsor’s ‘willingness to provide support’.

Under both approaches, in case of an explicit guarantee covering most of the GRE’s debt obligations, Scope will align the GRE’s rating with that of the public sponsor.

In a third step, Scope performs a supplementary analysis which can have credit-positive or negative implications for the final rating or no implications at all. This can include an assessment of the fundamentals of the GRE (under the ‘Top-Down’ approach) and the risk of potential negative interventions by the government or additional constraints to support (under both approaches).

Summary of the key changes

The update of the methodology includes the following changes:

• Simplification of the application of the approach via the equalisation factor for entities with robust and well-anchored explicit guarantees on their debt;
   
• Refinement of the qualitative assessment guidance tables of ‘Financial Interdependencies’;
   
• Modification of the output of the qualitative scorecard under the ‘Bottom-up’ approach;
   
• Additional editorial changes.

The update to the Government Related Entities Rating Methodology has no implications for existing ratings assigned by Scope.