amount, maturity)
external credit assessment instutition (ECAI) of the issue.
which can rate domestic debt issuances in
relation to the BSP's implementing guidelines An issuer credit rating, also sometimes called
of Basel II. corporate credit ratings or company ratings or
counterparty credit ratings, is a measure of a
Credit rating is an important component of company’s over-all creditworthiness.
capital markets development. Through credit
rating, improved disclosure and transparency A short-term credit rating evaluates a
are achieved, thereby making the financial company's capability to pay a debt security
markets more efficient. which will mature in 365 days or less.
The credit rating function in the Philippines A long-term credit rating evaluates a company’s
started in 1985 when a company then known capability to pay a debt security which will
as Credit Information Bureau, Inc. (CIBI) began mature in over a year’s time.
rating commercial papers as a requirement for
registration with the Securities and Exchange What are credit ratings used for?
Commission (SEC).
A credit rating is typically used to obtain funding
A. DEFINITION AND USE OF CREDIT RATINGS from the public. Raising funds from the capital
markets provides a company with improved
What is a credit rating? financial flexibility and can allow it to negotiate
for better terms and interest rates.
A credit rating is an opinion that provides a
measure of credit quality. It is an unbiased, A credit rating can also be used for marketing
independent, third-party evaluation of an issue and benchmarking purposes as through the
or issuer. It is a grading system which focuses rating process, a company’s strengths,
on a company’s capability and willing-ness to weaknesses, opportunities, and threats will be
pay its obligations upon maturity. highlighted.
Can a credit rating guarantee that an investor On the part of regulators and investors, credit
will not suffer losses? ratings can assist in their own evaluation and
monitoring of specific companies and
A credit rating is not a guarantee against future instruments. Credit rating agencies typically
losses, nor is it a recommendation to buy or sell have access to confidential information which
a specific security. It is a tool that can be used will not be readily available to other market
by investors, regulators, and the general public
participants.
to augment their own assessment of a
particular investment.
WHAT IS AN ISSUE RATING?
What are the types of credit rating available?
An issue rating is an assessment of an obligor's
There are issue credit ratings and issuer credit
capacity to pay specific short or long term
ratings. There are short-term and long-term
credit ratings. including commercial papers, asset-backed
SYMBOLS AND DEFINITIONS FOR BOND, COMMERCIAL PAPER and OTHER DEBT ISSUES
PRS 1 (Best Grade) : Strongest capability for timely payment of PRS Aaa : Obligations rated ‘PRS Aaa’ are of the highest quality
debt instrument issue on both interest and principal. with minimal credit risk. The obligor’s capacity to meet its
Repayment capacity will normally be evidenced by the following financial commitment on the obligation is extremely strong. PRS
High rates of return on funds employed; PRS Aa : Obligations rated ‘PRS Aa’ are of high quality and are
Conservative capitalization structures with moderate reliance subject to very low credit risk. The obligor’s capacity to meet its
on debt and ample asset protection; financial commitment on the obligation is very strong.
and high internal cash generation; PRS A : With favorable investment attributes and are considered
Well-established access to a range of financial markets and as upper-medium grade obligations. Although obligations rated
assured sources of alternative liquidity. ‘PRS A’ are somewhat more susceptible to the adverse effects of
PRS 2 (Better Grade) : Above average (strong) capability for its financial commitments on the obligation is still strong.
principal. This is normally evidenced by many characteristics of a PRS Baa : An obligation rated ‘PRS Baa’ exhibits adequate
PRS 1 rating but to a lesser degree. Earning trends and coverage protection parameters. However, adverse economic conditions
ratios, while sound, will be more subject to variations. and changing circumstances are more likely to lead to a
Capitalization characteristics, while still appropriate, may be more weakened capacity of the obligor to meet its financial
affected by external conditions. Ample alternate liquidity is commitment on the obligation. PRS Baa-rated issues may
PRS 3 (Good Grade) : Satisfactory capability for payment of debt PRS Ba : An obligation rated ‘PRS Ba’ is less vulnerable to
instrument issue on both interest and principal. nonpayment than other speculative issues. However, it faces
The effect of industry characteristics and market composition may major ongoing uncertainties relating to business, financial or
be more pronounced. Variability in earnings and profitability may economic conditions, which could lead to the obligor’s
result in changes in the level of debt protection measurements inadequate capacity to meet its financial commitment on the
PRS 4 : Minimal assurance for timely payment of debt instrument to nonpayment than obligations rated ‘PRS Ba’, but the obligor
issue on both interest and principal. Susceptible to near term currently has the capacity to meet its financial commitment on
PRS 5 : Capability to pay interest or principal of debt instrument PRS Caa : An obligation rated ‘PRS Caa’ is
PRS 6 : Payment of interest or principal of debt instrument issue the obligor to meet its financial commitments on the obligation.
NOTE: PhilRatings can also include a plus (+) or a (-) sign to and is subject to very high credit risk.
A PRS 1 minus rating is not equivalent to a rating of PRS 2 plus. PRS Ca : An obligation rated ‘PRS Ca’ is presently
interest.
An Issuer, company or counterparty rating is an opinion on an obligor's overall creditworthiness, apart from its ability to
pay specific obligations. PhilRatings has done issuer ratings for corporates,financial institutions and local government
units.
A company rated 'PRS Aaa' has a VERY STRONG capacity to meet its financial commitments relative to that of other
Philippine corporates. A 'PRS Aaa' is the highest Corporate Credit Rating assigned on the PRS scale.
PRS Aa (corp.)
A company rated 'PRS Aa' differs from the highest rated corporates only to a small degree, and has a STRONG
capacity to meet its financial commitments relative to that of other Philippine corporates.
PRS A (corp.)
A company rated 'PRS A' is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than higher-rated corporates. Still, the obligor has an ABOVE AVERAGE capacity to meet its
A company rated 'PRS Baa' has an AVERAGE capacity to meet its financial commitments relative to that of other
Philippine corporates. However, adverse economic conditions or changing circumstances are more likely to lead to
PRS Ba (corp.)
A company rated 'PRS Ba' has a BELOW AVERAGE capacity to meet its financial commitments relative to that of
other Philippine corporates. The company faces ongoing uncertainties or exposure to adverse business, financial, or
economic conditions, which could result in an inadequate capacity on the part of the corporation to meet its
financial commitments.
PRS B (corp.)
A company rated 'PRS B' has a WEAK capacity to meet its financial commitments relative to that of other Philippine
corporates. Adverse business, financial or economic conditions will likely impair the corporation's capacity or
A company rated 'PRS Caa' is CURRENTLY VULNERABLE and is dependent upon favorable business and financial
PRS Ca (corp.)
A company rated 'PRS Ca' is CURRENTLY HIGHLY VULNERABLE to defaulting on its financial commitments.
PRS C (corp.)
Financial Flexibility
Financial flexibility is a summation of all
the preceding factors, since it is an
evaluation of a company's ability to meet
unexpected demands on funds. Factors
considered include:
the company's ability to access various
funding markets and raise capital from the
public or private sources, generally, and in
a difficult environment
the extent of internal reserves available
to cover unexpected losses
the franchise value of specific
businesses
assets where the market value is
significantly greater then the book value
ability to sell; and
the likelihood of support from private
stockholders or the government
WHAT IS AN ISSUER RATING? a weakened capacity of the corporation
to meet its financial commitments.
An Issuer, company or counterparty rating
PRS Ba (corp.)
is an opinion on an obligor's overall
A company rated 'PRS Ba' has a BELOW
creditworthiness, apart from its ability to
AVERAGE capacity to meet its financial
pay specific obligations. PhilRatings has
commitments relative to that of other
done issuer ratings for corporates,financial
Philippine corporates. The company
institutions and local government units.
faces ongoing uncertainties or exposure
PRS ISSUER RATING SYMBOLS to adverse business, financial, or
CORPORATE ISSUER CREDIT RATING economic conditions, which could result
SYMBOLS AND DEFINITIONS in an inadequate capacity on the part of
A company rated 'PRS Aa' differs from likely impair the corporation's capacity
A company rated 'PRS A' is somewhat financial conditions to meet its financial