S&P - Public Finance Criteria (2007). - The Global Clearinghouse

IntroductionA-2Capacity for timely payment on issues with thisdesignation is satisfactory. However, the relativedegree of safety is not as high as for issues designated‘A-1’.A-3Issues carrying this designation have an adequatecapacity for timely payment. They are, however,more vulnerable to the adverse effects of changesin circumstances than obligations carrying thehigher designations.BIssues rated ‘B’ are regarded as having onlyspeculative capacity for timely payment.CThis rating is assigned to short-term debt obligationswith a doubtful capacity for payment.DDebt rated ‘D’ is in payment default. The ‘D’ ratingcategory is used when interest payments of principalpayments are not made on the date due, even if theapplicable grace period has not expired, unlessStandard & Poor’s believes such payments will bemade during such grace period.Dual RatingsStandard & Poor’s assigns “dual” ratings to alldebt issues that have a put option or demandfeature as part of their structure.The first rating addresses the likelihood of repaymentof principal and interest as due, and the secondrating addresses only the demand feature. The longtermdebt rating symbols are used for bonds todenote the long-term maturity and the commercialpaper rating symbols for the put option (for example,‘AAA/A-1+’). With short-term demand debt, noterating symbols are used with the commercial paperrating symbols (for example, ‘SP-1+/A-1+’).CreditWatch And Rating OutlooksA Standard & Poor’s rating evaluates default riskover the life of a debt issue, incorporating anassessment of all future events to the extent theyare known or considered likely. But Standard &Poor’s also recognizes the potential for future performanceto differ from initial expectations. Ratingoutlooks and CreditWatch listings address thispossibility by focusing on the scenarios that couldresult in a rating change.CreditWatch highlights potential changes in ratingsof bonds, short-term, and other fixed-income securities.Issues appear on CreditWatch when an eventor deviation from an expected trend has occurredor is expected and additional information is necessaryto take a rating action. Such rating reviews normallyare completed within 90 days, unless the outcomeof a specific event is pending. A listing does notmean a rating change is inevitable. However, insome cases, it is certain that a rating change willoccur and only the magnitude of the change is unclear.Wherever possible, a range of alternative ratingsthat could result is shown. CreditWatch is notintended to include all issues under review, andrating changes will occur without the issue appearingon CreditWatch. An issuer cannot automaticallyappeal a CreditWatch listing, but analysts aresensitive to issuer concerns and the fairness ofthe process.A Standard & Poor’s rating outlook assesses thepotential direction of a long-term credit rating overthe intermediate term (typically six months to twoyears). In determining a rating outlook, considerationis given to any changes in the economic and/orfundamental business conditions.An outlook is not necessarily a precursor of arating change or future CreditWatch action:■ Positive means that a rating may be raised,■ Negative means that a rating may be lowered,■ Stable means that a rating is not likely to change,■ Developing means a rating may be raisedor lowered.CreditWatch designations and outlooks may be“positive,” which indicates a rating may be raised,or “negative,” which indicates a rating may belowered. “Developing” is used for those unusual situationsin which future events are so unclear thatthe rating potentially may be raised or lowered.“Stable” is the outlook assigned when ratingsare not likely to be changed, but should not beconfused with expected stability of the company’sfinancial performance. ■10 Standard & Poor’s Public Finance Criteria 2007