GCR Publishes Updated Criteria for Secured Bond Expected Loss Credit Ratings
Johannesburg, 15 July 2021 – GCR has published an update to the Criteria for Secured Bond Expected Loss Credit Ratings. The criteria is available for download at GCRratings.com/criteria.
The criteria titled ‘Criteria for Secured Bond Expected Loss Credit Ratings’ is exclusively applied when according an Expected Loss (‘EL’) rating to specific listed or unlisted debt obligations, specifically when distinguishable security or collateral has been pledged to the holders of the debt, which improves their recovery prospects after an event of default (relative to senior claims).
Secured bond ratings can therefore only be applied to issue credit ratings. However, unlike other issue credit ratings, ‘Secured bond’ or ‘EL’ ratings also factor in expectations of post default recoverability from a specific collateral pool, as well as the issuer’s creditworthiness.
As a result of the above, the rating scale and symbols used when assigning ‘EL’ ratings are the same as those for issuer ratings (albeit secured bonds carry an additional ‘EL’ suffix), although the two are not comparable.
Changes to the criteria include the applicable haircuts for the collateral pool and the approach to notching based on the recovery prospects. All the ratings assigned by GCR using the previous version of the Secured Bond Criteria have been placed under criteria observation.
Credit Analyst: Corporate Ratings
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Group Head of Ratings
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Sector Head: Structured Finance Ratings
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Related Criteria and Research
Criteria for the GCR Ratings Framework, May 2019
Criteria for Secured Bonds Expected Loss Credit Ratings, July 2021
Issuer Credit Ratings, Issue Credit Ratings and Expected Loss (‘EL’) Ratings, June 2020
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.
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