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

Introduction To Public Finance Criteriaeasily usable tools for differentiating credit quality,because a Standard & Poor’s credit rating is judgedby the market to be reliable and credible.Rating ProcessStandard & Poor’s provides a rating only when thereis adequate information available to form a credibleopinion and only after applicable quantitative,qualitative, and legal analyses are performed.The analytical framework is divided into severalcategories to ensure salient qualitative and quantitativeissues are considered. The rating process is notlimited to an examination of various financialmeasures. Proper assessment of credit quality involvesan evaluation of the basic underlying economicstrength of the entity, as well as the effectiveness ofthe governing process to manage performance andaddress problems. Standard & Poor’s assembles ateam of analysts with appropriate expertise toreview information pertinent to the rating. A leadanalyst is responsible for the conduct of the ratingprocess. Several of the members of the analyticalteam may meet and/or discuss with managementof the organization to review, in detail, key factorsthat have an effect on the rating, including operatingand financial plans and management policies. Themeeting also helps analysts develop the qualitativeassessment of management itself, an importantfactor in the rating decision.Following this review and discussion, a ratingcommittee meeting is convened. At the meeting,the committee discusses the lead analyst’s recommendationand the pertinent facts supportingthe rating. Finally, the committee votes onthe recommendation.The issuer is subsequently notified of the ratingand the major considerations supporting it. A ratingcan be appealed prior to its publication, if meaningfulnew or additional information is to be presentedby the issuer. Obviously, there is no guaranteethat any new information will alter the ratingcommittee’s decision.Once a final rating is assigned, it is disseminatedto the public via Standard & Poor’s free web site(www.standardandpoors.com), through the newsmedia and through Standard & Poor’s publications.All initial ratings are assigned and released onlyby request.Rating TypesA Standard & Poor’s issuer credit rating is a currentopinion of an obligor’s overall financial capacity (itscreditworthiness) to pay its financial obligations.This opinion focuses on the obligor’s capacity andwillingness to meet its financial commitments asthey come due. It does not apply to any specificfinancial obligation, as it does not take into accountthe nature of and provisions of the obligation, itsstanding in bankruptcy or liquidation, statutorypreferences, or the legality and enforceability of theobligation. In addition, it does not take into accountthe creditworthiness of the guarantors, insurers, orother forms of credit enhancement on the obligation.The issuer credit rating is not a recommendation topurchase, sell or hold a financial obligation issuedby an obligor, as it does not comment on marketprice or suitability for a particular investor.Issuer credit ratings are based on current informationfurnished by obligors or obtained byStandard & Poor’s from other sources it considersreliable. Standard & Poor’s does not perform anaudit in connection with any issuer credit ratingand may, on occasion, rely on unaudited financialinformation. Issuer credit ratings may be changed,suspended, or withdrawn as a result of changes in,or unavailability of, such information, or based onother circumstances. Issuer credit ratings can beeither long-term or short-term. Short-term issuercredit ratings reflect the obligor’s creditworthinessover a short-term time horizon, usually one tothree years.Most Public Finance ratings are issue ratings. AStandard & Poor’s issue credit rating is a currentopinion of the creditworthiness of an obligor withrespect to a specific financial obligation, a specificclass of financial obligations, or a specific financialprogram. It takes into consideration the creditworthinessof guarantors, insurers, or other forms ofcredit enhancement on the obligation. The issuecredit rating is not a recommendation to purchase,sell, or hold a financial obligation, inasmuch as itdoes not comment as to market price or suitabilityfor a particular investor.Issue credit ratings are based on current informationfurnished by the obligors or obtained by Standard &Poor’s from other sources it considers reliable.Standard & Poor’s does not perform an audit inconnection with any credit rating and may, onoccasion, rely on unaudited financial information.Credit ratings may be changed, suspended, orwithdrawn as a result of changes in, or unavailabilityof, such information, or based on other circumstances.Issue credit ratings can be either long-term orshort-term. Short-term ratings are generallyassigned to those obligations considered short termin the relevant market. In the U.S., for example,that means obligations with an original maturity ofno more than 365 days-including commercialpaper. Short-term ratings are also used to indicatethe creditworthiness of an obligor with respect toput features on long-term obligations. The result isa dual rating, in which the short-term ratingswww.standardandpoors.com7