RATING WITHDRAWAL Credit rating agencies CRAs are regulated by Securities and Exchange - PDF document

ICRA’S POLICY ON WITHDRAWAL AND SUSPENSION OF CREDIT RATING RATING WITHDRAWAL Credit rating agencies (CRAs) are regulated by Securities and Exchange Board of India (SEBI) . Under SEBI (Credit Rating Agencies) Regulations, 1999 and March 2012 circular from SEBI , a Credit Rating cannot be withdrawn so long as the obligations under the rated securities/instruments and bank loans are outstanding, except in case the company , whose security is rated , is wound up or merged or amalgamated with another company. Additional Grou nds for Withdrawal of Credit Rating: Perpetual Instruments F or certain instruments which are perpetual in nature, ICRA may withdraw the ratings assigned to such instruments under the following conditions: 1. Public Deposits (a) If the c ompany has stopped using the ICRA - assigned Credit Rating to mobilise further deposits and has informed depositors about the rating withdrawal after giving an explicit option to prematurely withdraw the deposits, Credit R ating is withdrawn after six months from the date of the withdrawal notice. or (b) If the company has set aside in an escrow account an amount that ICRA considers adequate for the payment of the principal and interest outstanding to the depositors 2. Bank Cash Credit facilities / other lines perpetual in nature : If there is ‘ n o objection certificate ’ from all banks , Credit Rating is withdrawn after one month from the date of the withdrawal notice It needs to be highlighted that ICRA does n o t withdraw ratings to avoid negative rating actions . I f circumstances so warrant , ICRA reserves the right to revise the ratings during the withdrawal notice period. ICRA Rating Feature ICR ICRA NOVEMBER 2014 Additional Grounds for Withdrawal of Credit Rating: Structured Obligations In the case of Structured Obligations, ICRA may withdraw the Credit Rating in case of any of the following situations : 1. In the case of ‘ provisional ’ ratings, a. If in ICRA’s opinion, the structure actually adopted for the transaction, deviates significantly from that take n into account while assigning the ratings b. If ICRA has not received, within a reasonable time period, a written confirmation from the Issuer or the Trustee of the rated instrument, as the case may be, that the terms and conditions of the structure have been complied with. 2. In case on Non Invocation of Credit Enhancement: In cases where the onus of utilisation or invocation of the credit enhancement is on the Investor itself, and the Investor chooses not to enforce its right on the credit enhancement . For instance, take the case of bank facilities that are credit enhanced by corporate guarantee from the borrowing company’s Parent. While the guarantee may be a valid and enforceable document, the right of invocation of the guarantee, if the need arises, lies with the Bank itself (i.e., there is no third party Trustee involved). I f the Beneficiary (viz., the Bank) chooses not to invoke the guarantee even when it is entitled to do so , it would mean that one of the key assumptions underpinning the rating is not valid any more. In such a scenario, ICRA may withdraw the existing rating and assign a fresh rating based on the merits of the case. RATING SUSPENSION Why are some ratings suspended? ICRA is committed to monitor and update all its assigned ratings till the ratings are outstanding. However, ICRA may have to suspend the ratings under the following conditions: 1. If the information available is insufficient to monitor the rating 2. Such information is unlikely to be available to ICRA in the near future 3. Commercial reasons Suspended ratings would become non - meaningful after 6 months as ratings would no longer reflect the current credit opinion of ICRA. It may however be noted that ICRA does not suspend the ratings to avoid taking negative rating actions a nd ICRA reserves the right to revise the ratings based on available information till such time that the ratings become non meaningful.