Rating Scales

WASO RATING SCALES AND DEFINATIONS

Rating Symbol:
WASO credit rating is an opinion of credit quality of an individual obligation or of issuer’s general creditworthiness. To express the opinion, WASO uses generic rating symbol to describe the status of the respective issue or issuer profile. Additionally, it also uses some auxiliary signal about credit risk through the use of Rating Outlook and Rating watch list designation.

Unless otherwise indicated within the definition, all rating systems are monitored through surveillance. Rating may also be withdrawn for various reasons. The Rating Committee is in full discretion to assign any rating.

Scope of Rating Definitions:
The definitions in this handbook are not intended to provide a detailed view of how ratings are determined. WASO publishes rating methodology for the respective sector and these are designed to described the factors underpinning the WASO’s rating opinion. We encourage reader to review the respective rating methodology.

General Credit Rating Symbol and Definitions:
Issuer Ratings:
Issuer Ratings are opinions of the abilities of entities to honour senior unsecured financial obligations and contacts. WASO expresses issuer ratings on its General short term and long term scales.
Issuer Rating: Long Term

Aaa

Investment Grade:

Issuers rated Aaa are judged to be of the highest quality with minimal credit risk.

Aa

Issuers rated Aa are judged to be of very high quality and are subject to very low credit risk

A

Issuers rated A are upper medium grade and are subject to low credit risk

Bbb

Issuers rated Bbb are subject to medium credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
Speculative Grade :

Bb

Issuers rated Bb are judged to have speculative elements and subject to substantial credit risk.

B

Issuers rated B are considered speculative and are subject to high credit risk.
Risky Grade :

Ccc

Issuers rated Ccc are judged to be of poor standing and are subject to very high credit risk.

Cc

Issuers rated Cc are highly speculative and are likely or very near in default, with some prospect of recovery of principal and interest.

C

Issuers rated C are the lowest rated class of bonds and are typically in default with little prospect of recovery of principal and interest.
Default Grade:

D

Indicates that the issuer is in default, is technically or actually in bankruptcy.

Note : WASO appends numerical 1,2 and 3 to each generic rating classification from Aa through Cc. The modifier 1 indicates that the issuer ranks in the higher end of its generic rating category; the modifier 2 indicates that a mid-range ranking, and the modifier 3 indicates that a ranking in the lower end of that generic rating category.

Issuer Rating: Short Term

Prime
P-1 Issuers rated Prime – 1 have a superior ability to repay short term debt obligations. They are most likely to have the capacity to meet their obligations over the coming 12 months through internal resources without relying on external sources of committed financing.
P-2 Issuers rated Prime – 2 have a strong ability to repay short term debt obligations. They are likely to meet their obligations over the coming 12 months through internal resources but may rely on external sources of committed financing.
P-3 Issuers rated Prime – 3 have an acceptable ability to repay short term debt obligations. They are expected to rely on external sources of committed financing. Based on its evaluation of near term covenant compliance, WASO believes that the issuer may require covenant relief in order to maintain orderly access to funding lines.
Not Prime
NP Issuer rated not prime is considered as weak liquidity or susceptible to service short term obligations. They rely on external sources of financing and the availability of that financing is, in WASO’s opinion, highly uncertain.

Issue Ratings

WASO’s issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects WASO’s view of the obligor’s capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be either long term or short term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In our country, for example, those obligations with an original maturity of no more than 365 days—including commercial paper.

Corporate Obligations Rating: Long Term

Aaa

Investment Grade:

Obligations rated Aaa are judged to be of the highest quality with minimal credit risk.

Aa

Obligations rated Aa are judged to be of very high quality and are subject to very low credit risk

A

Obligations rated A are upper medium grade and are subject to low credit risk

Bbb

Obligations rated Baa are subject to medium credit risk. They are considered medium grade and as such may possess certain speculative characteristics.
Speculative Grade :

Bb

Obligations rated Bb are judged to have speculative elements and subject to substantial credit risk.

B

Obligations rated B are considered speculative and are subject to high credit risk.
Risky Grade :

Ccc

Obligations rated Ccc are judged to be of poor standing and are subject to very high credit risk.

Cc

Obligations rated Cc are highly speculative and are likely or very near in default, with some prospect of recovery of principal and interest.

C

Obligations rated C are the lowest rated class of obligations and are typically in default with little prospect of recovery of principal and interest.
Default Grade:

D

Indicates that payment is in default, is technically or actually in bankruptcy

 

Note : WASO appends numerical 1,2 and 3 to each generic rating classification from Aa through Cc. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates that a mid-range ranking, and the modifier 3 indicates that a ranking in the lower end of that generic rating category.

Corporate Obligations Rating: Short Term

Prime
P-1 Issuer rated Prime – 1 have a superior ability to repay its obligations. This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
P-2 Issuer rated Prime – 2 have a strong ability to repay its obligations. This indicates the obligor’s capacity to meet its financial commitment on the obligation is satisfactory although adverse economic conditions may affect its repayment capacity.
P-3 Issuer rated Prime – 3 have an acceptable ability to repay its obligations. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Not Prime
NP -1 A short-term obligation rated ‘NP-1’ is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
NP-2 A short-term obligation rated ‘NP-2’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
Default
D A short-term obligation rated ‘D’ is in payment default or jeopardized through bankruptcy petition of similar action.

Short Term Vs. Long Term Ratings

 

Other Rating Symbols

Provisional ratings (P)
WASO will assign a provisional rating when the assignment of a final rating is subject to the fulfillment of contingencies but it is highly likely that the rating will become definitive after all documents are received or an obligation is issued in the market. A provisional rating is denoted by placing a (P) in front of the rating. Such ratings are typically assigned to transaction based structures like bond, debentures that require investor education before investment decision. When a transaction uses a well established structure and transaction’s structure and terms are not expected to change prior to sale in a manner that would affect the rating. A definitive rating may be assigned directly.

Withdrawn (WR)
When WASO no longer rates an obligation on which it previously maintained a rating.

Not Rated 
NR is assigned to an unrated issuer or issue.

Rating Outlook

WASO rating outlook assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years). In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. An outlook is not necessarily a precursor of a rating change or future Rating Watch action. WASO assigns the following outlook :

  • Positive means that a rating may be raised.
  • Negative means that a rating may be lowered.
  • Stable means that a rating is not likely to change.
  • Developing means a rating may be raised or lowered.

Rating Watch Definitions

Rating Watch highlights our opinion regarding the potential direction of a short-term or long-term rating. It focuses on identifiable events and short-term trends that cause ratings to be placed under special surveillance by WASO’s analytical staff. Ratings may be placed on Rating Watch under the following circumstances:

  • When an event has occurred or, in our view, a deviation from an expected trend has occurred or is expected and when additional information is necessary to evaluate the current rating. Events and short-term trends may include mergers, recapitalizations, regulatory actions, performance deterioration of securitized assets, or anticipated operating developments.
  • When we believe there has been a material change in performance of an issue or issuer, but the magnitude of the rating impact has not been fully determined, and we believe that a rating change is likely in the short-term.
  • A change in criteria has been adopted that necessitates a review of an entire sector or multiple transactions and we believe that a rating change is likely in the short-term.

A Rating Watch listing, however, does not mean a rating change is inevitable, and when appropriate, a range of potential alternative ratings will be shown. Rating Watch is not intended to include all ratings under review, and rating changes may occur without the ratings having first appeared on Rating Watch. The “positive” designation means that a rating may be raised; “negative” means a rating may be lowered; and “developing” means that a rating may be raised, lowered, or affirmed.