AK&M Rating Agency develops rating methodology for specialized project finance companies

The methodology committee of CJSC AK&M Rating Agency considered and approved the methodology for estimating the creditworthiness of specialized project finance companies (SPFCs), special-purpose vehicles established to serve large-scale investment projects including those implemented using public private partnership schemes.

AK&M Rating Agency’s credit rating results from the comprehensive assessment of the project finance company’s ability to fully and timely meets its obligations to service and repay its credits and loans whether using the cash flows generated by the project upon completion of the pre-investment phase, or disposing of the property created as a result of the project. The project finance company’s credit rating is a long-term estimate reflecting AK&M Rating Agency’s opinion on the borrower’s solvency, i.e. ability and willingness to discharge its debt obligations and the probability of a default on them during the whole project period.

AK&M RA assigns ratings as per the national rating scale regardless of the sovereign risk.

The rating can be assigned to a project finance company as such, or to a specific type of its debt liabilities (such as a bonded loan). In the former case, the rating represents the risk of the borrower’s default on all its financial obligations including the corresponding interest payments. In the latter case, the debt security rating represents the risk of the borrower’s failure to discharge the obligations related to this financial instrument including the necessary interest (coupon) payments. The long-term SPFC credit rating reflects AK&M Rating Agency’s opinion on the project finance company’s ability to timely and fully meet the securities issue obligations following from the issue prospectus and the investment policy statement.

The SPFC credit rating reflects the AK&M Rating Agency experts’ opinion on the credit status of the project finance company as of the rating assignment date. The rating assigned may later be upgraded or downgraded, or withdrawn based on the regularly monitored performance of the rated entity.

The methodology comprises a number of criterion rules (structured as tables, charts, algorithms, etc) of scoring general and specific credtitworthiness parameters grouped as follows: general risks incidental to the project; key financial metrics including the average annual DSCR, stability of net cash flows, competitive position of the project. 

The methodology fully incorporates the rating standards for concession bonds developed by AK&M Rating Agency in 2013 and 2014 and repeatedly tested when assigning ratings to such financial instruments.

If highly rated, concession bonds may be in demand among institutional investors (pension funds and insurance companies) provided that the securities are on the top-level quotation list of CJSC MICEX Stock Exchange.