CRISP’s corporate credit rating methodology examines industry risk, business risk, financial risk and management quality to arrive at an overall credit opinion on an issuer’s credit worthiness. CRISP does not assign fixed weights to these analytical areas to come up with a rating. Rather, CRISP uses them as inputs in developing an assessment of the risks associated with the proposed investment instrument.
CRISP uses these analytical areas as guide in ensuring a comprehensive evaluation of the factors that could affect the issuer’s creditworthiness.
INDUSTRY RISK
A CRISP risk assessment for a corporate issuer is done in the context of the industry where it operates to appreciate its organizational strategy and financial performance.
Among issues that CRISP includes in this analysis are industry growth potential issues, relevant public policies, and level and nature of competition.
BUSINESS RISK
In evaluating business risks, CRISP considers an issuer’s current market position, business strategy, and operating model. CRISP reviews the strategy and plans by the prospective issuer to maintain or expand, as the case may be, its future market share.
CRISP examines the operations of the issuer to identify its strengths or operating weakness that could enhance or undermine its market position and financial performance.
CRISP takes into consideration an issuer’s product diversity, sourcing strategies, and their overall fit with its organizational set up and performance.
FINANCIAL RISK
CRISP reviews an issuer’s historical financial performance for basis of its financial projections and to assess its financial flexibility. Among issues of major interest to CRISP’s analysis are the issuer’s profitability, capital structure, cash flow adequacy and overall financial stability. CRISP requires that an issuer submit a 5-year audited financial statements, interim reports and financial forecasts.
CRISP examines an issuer’s funding structure to identify potential risks associated with interest rate and/or currency exchange fluctuations and debt maturity schedules.
MANAGEMENT QUALITY
CRISP considers management quality a major driver of an issuer’s performance. CRISP assesses an issuer’s management strategy, policies and organizational processes. Major issues that are considered in this analysis include management track record, composition, policies and succession.