Credit Ratings Evaluation

How to Interpret Credit Ratings and What They Mean for a Deal Most analysts see credit ratings as a static input in a model. But understanding what they actually reflect can give you a sharper edge during deal evaluation. Here’s how I look at credit ratings and why they matter: 1. Credit ratings are risk signals – They reflect the issuer’s ability to meet debt obligations – The focus is on default risk—not valuation, not equity upside – Issued by agencies like S&P, Moody’s, Fitch 2. The rating scale has tiers—and thresholds matter – Investment Grade: BBB-/Baa3 and above – Sub-Investment Grade (High Yield): Below BBB-/Baa3 – A downgrade across this line widens the cost of debt significantly 3. Ratings drive pricing and access – Better rating = lower interest cost = stronger debt capacity – Poorer rating = higher yields, tighter covenants, more scrutiny – In some cases, a company may delay or cancel issuance due to a downgrade risk 4. Ratings affect M&A and LBO feasibility – Acquirers care about post-deal leverage metrics that affect ratings – In LBOs, the debt used will often be rated—impacting pricing and structure – Even the rumor of a downgrade can move spreads and hurt deal timing 5. Always read the rationale behind the rating – Agencies publish detailed notes on what drives the rating – Look for red flags: cyclicality, margin pressure, liquidity constraints – Watch the outlook (Positive/Negative/Stable)—it’s forward guidance Credit ratings reflect how the market treats that company. Understanding that difference can give you an edge in debt structuring, M&A strategy, deal structuring. Follow Pratik for investment banking careers and education

Issuer Default Rating (IDR) is a credit rating assigned by credit rating agencies to assess the creditworthiness of a specific entity, such as a corporation or government. It indicates the likelihood of the entity defaulting on its financial obligations, such as debt payments. IDRs are used by investors and financial institutions to evaluate the risk associated with investing in or lending to the entity. The rating is usually expressed using letters, with AAA or Aaa being the highest rating and D being the lowest, indicating default. The components that make up an Issuer Default Rating (IDR) can vary depending on the credit rating agency providing the rating. However, some common factors considered in determining an IDR include: 👉🏼 Financial Performance: The entity's financial strength, profitability, and cash flow generation are evaluated to assess its ability to meet financial obligations. 👉🏼 Debt Burden: The level of existing debt and its proportion relative to the entity's assets or earnings is analyzed to understand its debt-servicing capacity. 👉🏼 Business Environment: The industry and economic conditions in which the entity operates are considered, as they can impact its revenue and overall financial health. 👉🏼 Management and Governance: The competence of the entity's management team and the effectiveness of its corporate governance practices are assessed for their impact on financial stability. 👉🏼 Market Position: The entity's competitive position and market share are evaluated to gauge its ability to withstand economic challenges and market fluctuations. 👉🏼 External Factors: Factors such as regulatory environment, political stability, and external support or ownership can also play a role in determining an IDR. These components help credit rating agencies assign a rating that reflects the entity's credit risk and likelihood of defaulting on its financial obligations. Keep in mind that the specific weightings and methodologies used can differ among rating agencies. #issuerdefaultrating #creditrating #financialperformance #debtburden #businessenvironment #managementandgovernance #marketposition #externalfactors #linkedin LinkedIn LinkedIn for Creators

𝐁𝐚𝐧𝐠𝐥𝐚𝐝𝐞𝐬𝐡’𝐬 𝐂𝐫𝐞𝐝𝐢𝐭 𝐑𝐚𝐭𝐢𝐧𝐠 𝐃𝐨𝐰𝐧𝐠𝐫𝐚𝐝𝐞: 𝐂𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞𝐬 𝐚𝐧𝐝 𝐂𝐨𝐧𝐟𝐢𝐝𝐞𝐧𝐜𝐞 𝐢𝐧 𝐚 𝐓𝐮𝐫𝐧𝐚𝐫𝐨𝐮𝐧𝐝 Moody’s has downgraded Bangladesh’s sovereign credit rating from B1 to B2 and revised the outlook from stable to negative. This reflects heightened vulnerabilities, including inflation, declining reserves, and policy uncertainty. The move also signals increased risks for the country’s ability to meet its financial obligations, which could lead to: • Higher trade financing costs: Importers and exporters will face increased charges for letters of credit and other trade financing instruments. • Rising borrowing costs: Accessing international capital will become more expensive as Bangladesh is now perceived as a higher-risk borrower. • Further economic strain: Without decisive reforms, the likelihood of further deterioration remains. While the challenges are significant, there is confidence in the strong track record and credibility of Bangladesh’s leadership. The country has demonstrated resilience in the past, navigating crises and implementing reforms when needed. With swift and targeted action, this situation can turn around quickly and sustainably. Key priorities to reverse the trend include: • Introducing market-driven policies for exchange rates and interest rates. • Strengthening governance in financial institutions and economic policy making. • Stabilizing inflation and boosting foreign reserves through transparent fiscal measures. • Building a predictable and reform-oriented policy framework. This is not just a challenge—it’s an opportunity to rebuild confidence in Bangladesh’s economy and its global partnerships. Let’s trust in our ability to overcome and thrive. What actions do you believe will have the most impact in turning this situation around? #Economy #CreditRating #Bangladesh #PolicyReform #Leadership