General Principles for Issue Rating
General Principles for Issue Rating
  • A-
  • A
  • A+

In JCR ER's rating system, the main criterion for reporting the rating analyzes and reports to be prepared for securities to be issued by 

  • Large-medium and small-sized enterprises, 
  • Banks and non-Bank financial institutions, 
  • Public enterprises

independently from the general credit rating reports, is whether the liabilities to be issued are carried in the balance sheet of the institution. Since the issuance obligations carried/to be carried on the business balance sheets are evaluated holistically in the current corporate credit rating report, there is no need to prepare an independent issue rating in a separate structure. Therefore, in the rating stages of the securities to be issued by all enterprises within the rating systematic of JCR ER, the issue rating in the risk analysis to be made, since the issue liabilities are carried or will be carried in the business balance sheets, as the issue liabilities will be directly affected by all the financial and corporate risks of the companies, like the other liabilities of the company, It is not separated from the corporate credit rating process of companies and an independent issue rating report is not prepared, it is analyzed and rated within the general credit rating report. 

However, at the stage of rating the securities to be issued, if the issuance liabilities are not carried or will not be carried on the balance sheets, since the issuance liabilities will be structured out of the firm's balance sheets, the firm will not be directly affected by all financial and corporate risks of the firms, like other liabilities of the firm. Therefore, in the risk analysis to be made, an independent issuance rating report is prepared by separating the issue rating from the corporate credit rating process of the companies. 

1. Rating of Issues Carried and/or To Be Carried on the Balance Sheet  

The issue rating and the corporate structure of the company will be evaluated in the same rating category if there is no positive difference in terms of legal and collateral in the issuance process in favor of investors in the rating of the liabilities provided through issuance to be carried on the balance sheets. Otherwise, the ratings to be determined for the issue rating and the corporate structure will differ. 

1.1. The Case of no Differences in Legal and Collateralization of Resources Obtained through Issuance Compared to Other Liabilities

  • In terms of securities issuances to be carried on the company's balance sheets, these issues offer no advantages or differences over the repayments of money market loans, commercial debts, and other similar liabilities. 
  • The investment environment, conjuncture, macroeconomic circumstances, all external risks based on sectoral developments, and the company's specific financial/corporate risks, as well as the rating category in which these risks are matched, all influence and determine the repayment levels of all other liabilities, including issuance obligations on the balance sheets. 
  • The ratings allocated for the integrated structure of the company in terms of payment priority and payment security also represent issue liabilities that do not have any collateral differences such as legal differences, pledges, mortgages, guarantees, sureties and insurance.

A separate rating report will not be prepared for the securities issuances that are/will be carried on the company's balance sheets along with other liabilities, and the issue ratings will be evaluated holistically within the credit rating reports to be given to the company's corporate structure.

The adequacy of the cash flows that will be generated within the company's economic integrity will be the major determining factor in the repayment of the principal and interest that will result from the issue of capital market instruments. Therefore, the adequacy of the company's cash flows is analyzed in an integrated manner, not only for the fulfillment of its issuance liabilities, but also for the repayment of all liabilities at maturity.

As a result, the issue rating and the corporate structure of the company will be evaluated in the same rating category if as mentioned above, there is no positive difference in terms of legal and collateral in the issuance process in favor of current/potential investors of capital market instruments, in the rating of the liabilities provided through issuance to be carried on the balance sheets. Because there will be no material basis for rating differentiation.

1.2. The Case of Differences in Legal and Collateralization of Resources Obtained through Issuance Compared to Other Liabilities

  • In terms of issuance of securities to be carried on company balance sheets, these issues have privileges and differences compared to the repayments of loans obtained from money markets, commercial debts and other similar liabilities.
  • The investment environment, conjuncture, macroeconomic circumstances, all external risks based on sectoral developments, and the company's specific financial/corporate risks, as well as the rating category in which these risks are matched, all influence and determine the repayment levels of all other liabilities, including issuance obligations on the balance sheets. However, specific positive collateral differentiations of issuance obligations will be taken into account.

A separate rating report will not be prepared for the securities issuances that are/will be carried on the company's balance sheets together with other liabilities, and the issue ratings will be evaluated separately and independently within the credit rating reports to be given to the company's corporate structure.

The adequacy of the cash flows that will be generated within the company's economic integrity will be the major determining factor in the repayment of the principal and interest that will result from the issue of capital market instruments. Therefore, the adequacy of the company's cash flows is analyzed in an integrated manner, not only for the fulfillment of its issuance liabilities, but also for the repayment of all liabilities at maturity. Furthermore, rating differentiation can be achieved by taking into consideration the additional guarantees provided to investors by the differential collateral structure.

2. Rating of Issues that will not be carried in the balance sheet but will be moved in a different structure

Issues that have been/will be realized within a different structure created outside the enterprise will be rated with a completely separate rating report within the scope of the Structured Finance methodology. 

2.1. Criteria of Rating Differentiation

The main criteria that cause a difference between the Corporate Credit Ratings of the companies and the issuance ratings they carry on their balance sheets are the credibility level of the party giving the guarantee, the quality of the collateral, its legal coverage and finally the validity period. These primary clusters, their sub-details, and model-based weights are listed below. 

a)    Guarantor;

  • The credibility of the guarantor will be decisive.
  • If the guarantor institution already has a credit rating determined within the scope of the JCR ER methodology, it is taken into account in the credibility evaluation.
  • Even if the guarantor does not have a credit rating given by the JCR ER, the rating obtained will be valid within the scope of the credibility assessment If the data enabling the establishment of a credit rating score about the institution can be accessed.
  • If it is not possible to reach the data that will form the basis for the determination of the credibility of the guarantor, or if it is not possible to form an opinion on this matter, rating differentiation will not be made in favor of the issued security due to the uncertainty created.

b)    Nature of the Guarantee;

  • Cash and cash equivalent assets will be considered as the priority and upper group.
  • It will be taken into account the promise of limiting the use of cash and cash equivalent securities until the maturity of the securities.
  • Bank guarantees are considered as cash and will be differentiated based on the banks' credibility and the guarantee's coverage.
  • Brokerage house undertakings are considered as cash that will be differentiated based on the brokerage house's credibility, financial strength, and inclusivity.
  • All special covenants created by existing lenders will be considered.
  • If the material assets are included as guarantee among the company's own assets; 
  • Decision will be made according to the level and guarantee of the security being taken out of the use of the company.
  • Restrictions on the access of third parties who are creditors of the company to the secured asset will also be taken into account.
  • The difficulties that may arise in accessing this asset due to the company's other liabilities will also be taken into account.
  • In case the company partners and third parties provide guarantee from their personal assets, the above issues will be similarly valid.
  • When it comes to insuring bond debts, insurance companies' credibility and coverage will be taken into account.
  • Other guarantees that must be made will be handled in accordance with the same fundamental principles.

c)    Legal Scope of the Guarantee;

Following the determination of the party's quality and the type of the guarantee, a positive rating difference is calculated based on the coverage ratio of the determined amount to the issuance amounts.  That means, the coverage rate will not exceed 150% of the issue. 

d)    Validity Period of Guarantee;

This section looks at whether the guarantee that will be provided will be effective for the entire term of the issuance.