All credit rating agencies follow a specific step by step mechanism to do credit rating of the products specified by the client. The process of credit rating is very extensive and under it a detailed study is done considering various macro parameters. These parameters may include the changing political scenario, the pace of economic development and financial development of industry also. Any credit rating process starts only after the receipt of a formal request by the company which is willing to get rating of its financial products. The following steps are involved in this
1. Receipt of the request:- This is the first step of rating. First of all a formal request is received from the company which wants a rating for its financial products or any other instrument.Both rating agency and company enters into a formal agreement.The agreement contains very clearly that information provided by the company will be keep very confident by the credit rating agency. It is the right of the issuer company to accept or not to accept the credit rating done by the crefit rating agency. The issuer company is required to provide all material information to the credit rating agency for the rating process.
2.Assignment to analytical team:- Once a formal request is received by the credit rating ageny and an agreement is made then an analytical team is made for the purpose of rating. The team generally comprises of two members who are expert in the related business area and in the rating process.
3.Obtaining information:- The analytical team formed collects the all required information from client company.generally a list of various components is provided to the client about whom the analytical team looks for detailed information. Through the past experience and expertise of the team members they know which type of information and meterial facts influence the credit rating of the company. generally the analytical team asks for the financial statement of the company, cash flow statement and other significant.
4. Plant visits and meeting with management :- A plant visit is always important to understand the operations of a client's business. Therefore a team visits the plants and understands the production runs, the machineries used, the equipments and technical facilities and the human capital working in the plants. The team also tries to understand the influence of various factors on the operations of the client. A discussion is also made with the issuer to know about his business and the information is not disseminated among the public .Several key issues are identified with regard to financial performance of the industry and issuer company ,the potential of industry, the technical aspects related to the operations and other financial data for a broad disscussion in the internal committee.
5.Presentation of findings:- Once the analysis is completed then it is discussed extensively in the internal committee of the rating agency. This committee comprises of senior analysts of the rating agency. After discussion a consensus is developed with the regard to the rating to the issuer and the findingsof this team is forwarded to the rating committee.
6.Rating committee meeting:- The rating committee finally assigns the rating. There is no direct involvement of the issuer company in the rating committee. The rating committe makes a thorough analysis of all the factors and then finalize the rating of the issuer company.
7.Communication of decision:- The grades assigned by the rating agency are finally communicated to the client coampny. With the rating grades all supportive documents are provided to justify the grade given by the company .If the issuer company is not willing to accept the grades given the either it can sak for review of the rating or it can simply rejected . If rating is rejected by the client company then this information is also kept completely confidential and not disclosed to any party.
8.Dissemination to the public:- If the issuer accepts the rating done by credit rating agency then this information is dissemination among the public through printed reports.
9.Monitoring for possible change:- The task of credit rating agency is not over with the dissemination of information regarding credit rating among the general public but it is also obliged to continuously monitor the rating assinged to a particular instrument of the client company.If there is any significant impact on the rating assigned to the financial instrument or any other product by he political movements of any other trend in the industry then rating must be reviewed by the rating agency and informed to the general public by published reports.