The proposed updated methodology can be downloaded here.

The proposed update provides increased transparency and a detailed presentation of Scope’s analytical approach for assigning credit ratings to non-financial corporates. The methodology continues to be based on a modular rating approach for issuer ratings comprising an assessment of key rating factors that define a rated entity’s business and financial risk profiles, which is supplemented by supplementary rating drivers.

The rating approach on long-term debt ratings remains based on a generic notching approach for investment-grade rated issuers and a recovery analysis reflecting the value of claims at default against expected debt positions at default. The rating approach on short-term debt ratings remains based on the underlying issuer rating and its Outlook as well as Scope’s assessment on the rated entity’s liquidity position.

The updated methodology could have an impact on outstanding ratings:

1. a positive rating impact on one issuer rating of up to one notch related to the introduction of the AAA category for Scope-adjusted credit metrics
    
2. a negative rating impact on one issuer rating of up to one notch related to the refined assessment on an issuer’s liquidity

Summary of the proposed key changes

The proposed methodology includes the following adjustments to increase the transparency of the rating process:

• Guidance on capturing short- to medium term-maturity profile, longer term refinancing risks, and quality of liquidity sources under the liquidity assessment
   
• Introduction of AAA category for Scope-adjusted credit metrics
   
• Guidance on limitations of credit quality for SMEs
   
• Provision of specific factors/examples under peer context that could lead to up/downward revisions of the rating
   
• Clarification on the calculation of Scope-adjusted debt with hybrid debt instruments (notional) included in reported gross debt
   
• Enhancement of definition of sources and uses of cash for the purpose of calculating an issuer's liquidity
   
• Definition of geographical regions (Europe and World)
   
• Guidance on the impact of concentration risk on the assessment of an issuer's business risk profile
   
• Provision of additional examples of one-off/special items to be considered in the calculation of Scope-adjusted EBITDA
   
• Introduction of more detailed and prioritised eligibility criteria for an equity credit for hybrid debt instruments
   
• Definition of possible anchor points for understanding the accessibility and permanence of cash for an issuer
   
• Introduction of eligibility criteria for the inclusion of marketable securities in cash and cash equivalents
   
• Provision of examples of governance issues that could lead to downward rating revisions
   
• Editorial changes

Call for comments

Scope invites issuers, investors and other interested parties to comment on the methodology by 16 November 2024, 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.