PhilRatings is a BSP-recognized domestic
amount, maturity)
external credit assessment instutition (ECAI)
which can rate domestic debt issuances in
relation to the BSP's implementing guidelines
of Basel II.
Credit rating is an important component of
capital markets development. Through credit
rating, improved disclosure and transparency
are achieved, thereby making the financial
markets more efficient.
The credit rating function in the Philippines
started in 1985 when a company then known
as Credit Information Bureau, Inc. (CIBI) began
rating commercial papers as a requirement for
registration with the Securities and Exchange
Commission (SEC).
A. DEFINITION AND USE OF CREDIT RATINGS
What is a credit rating?
A credit rating is an opinion that provides a
measure of credit quality. It is an unbiased,
independent, third-party evaluation of an issue
or issuer. It is a grading system which focuses
on a company’s capability and willing-ness to
pay its obligations upon maturity.
Can a credit rating guarantee that an investor
will not suffer losses?
A credit rating is not a guarantee against future
losses, nor is it a recommendation to buy or sell
a specific security. It is a tool that can be used
by investors, regulators, and the general public
to augment their own assessment of a
particular investment.
What are the types of credit rating available?
There are issue credit ratings and issuer credit
ratings. There are short-term and long-term
credit ratings.
An issuer credit rating assesses a company’s
capability to pay a specific debt instrument
according to the terms (e.g.
of the issue.
An issuer credit rating, also sometimes called
corporate credit ratings or company ratings or
counterparty credit ratings, is a measure of a
company’s over-all creditworthiness.
A short-term credit rating evaluates a
company's capability to pay a debt security
which will mature in 365 days or less.
A long-term credit rating evaluates a company’s
capability to pay a debt security which will
mature in over a year’s time.
What are credit ratings used for?
A credit rating is typically used to obtain funding
from the public. Raising funds from the capital
markets provides a company with improved
financial flexibility and can allow it to negotiate
for better terms and interest rates.
A credit rating can also be used for marketing
and benchmarking purposes as through the
rating process, a company’s strengths,
weaknesses, opportunities, and threats will be
highlighted.
On the part of regulators and investors, credit
ratings can assist in their own evaluation and
monitoring of specific companies and
instruments. Credit rating agencies typically
have access to confidential information which
will not be readily available to other market
participants.
WHAT IS AN ISSUE RATING?
An issue rating is an assessment of an obligor's
capacity to pay specific short or long term
including commercial papers, asset-backed
securities, bonds, among others.
PRS ISSUE RATING SYMBOLS

SYMBOLS AND DEFINITIONS FOR BOND, COMMERCIAL PAPER and OTHER DEBT ISSUES

SHORT-TERM ISSUANCES LONG-TERM ISSUANCES

PRS 1 (Best Grade) : Strongest capability for timely payment of PRS Aaa : Obligations rated ‘PRS Aaa’ are of the highest quality

debt instrument issue on both interest and principal. with minimal credit risk. The obligor’s capacity to meet its

Repayment capacity will normally be evidenced by the following financial commitment on the obligation is extremely strong. PRS

characteristics: Aaa is the highest rating assigned by PhilRatings.

Leading market positions in well established industries;

High rates of return on funds employed; PRS Aa : Obligations rated ‘PRS Aa’ are of high quality and are

Conservative capitalization structures with moderate reliance subject to very low credit risk. The obligor’s capacity to meet its

on debt and ample asset protection; financial commitment on the obligation is very strong.

Broad margins in earnings coverage of fixed financial charges

and high internal cash generation; PRS A : With favorable investment attributes and are considered

Well-established access to a range of financial markets and as upper-medium grade obligations. Although obligations rated

assured sources of alternative liquidity. ‘PRS A’ are somewhat more susceptible to the adverse effects of

changes in economic conditions, the obligor’s capacity to meet

PRS 2 (Better Grade) : Above average (strong) capability for its financial commitments on the obligation is still strong.

payment of commercial paper issue for both interest and

principal. This is normally evidenced by many characteristics of a PRS Baa : An obligation rated ‘PRS Baa’ exhibits adequate

PRS 1 rating but to a lesser degree. Earning trends and coverage protection parameters. However, adverse economic conditions

ratios, while sound, will be more subject to variations. and changing circumstances are more likely to lead to a

Capitalization characteristics, while still appropriate, may be more weakened capacity of the obligor to meet its financial

affected by external conditions. Ample alternate liquidity is commitment on the obligation. PRS Baa-rated issues may

maintained. possess certain speculative characteristics.

PRS 3 (Good Grade) : Satisfactory capability for payment of debt PRS Ba : An obligation rated ‘PRS Ba’ is less vulnerable to

instrument issue on both interest and principal. nonpayment than other speculative issues. However, it faces

The effect of industry characteristics and market composition may major ongoing uncertainties relating to business, financial or

be more pronounced. Variability in earnings and profitability may economic conditions, which could lead to the obligor’s

result in changes in the level of debt protection measurements inadequate capacity to meet its financial commitment on the

and in the requirement of relatively high financial leverage. obligation.

Adequate alternate liquidity is maintained.

PRS B : An obligation rated ‘PRS B’ is more vulnerable

PRS 4 : Minimal assurance for timely payment of debt instrument to nonpayment than obligations rated ‘PRS Ba’, but the obligor

issue on both interest and principal. Susceptible to near term currently has the capacity to meet its financial commitment on

the obligation. Adverse economic conditions will likely impair the

 adverse change due to less favorable financial or economic obligor’s capacity to meet its financial commitment on the

condition. obligation. The issue is characterized by high credit risk.

PRS 5 : Capability to pay interest or principal of debt instrument PRS Caa : An obligation rated ‘PRS Caa’ is

issue is very doubtful. presently vulnerable to nonpayment and is dependent

upon favorable business, financial and economic conditions for

PRS 6 : Payment of interest or principal of debt instrument issue the obligor to meet its financial commitments on the obligation.

is in default. In the event of adverse economic conditions, the obligor is not

likely to have the capacity to meet its financial commitment on

the obligation. The issue is considered to be of poor standing

NOTE: PhilRatings can also include a plus (+) or a (-) sign to and is subject to very high credit risk.

further qualify the above ratings.

A PRS 1 minus rating is not equivalent to a rating of PRS 2 plus. PRS Ca : An obligation rated ‘PRS Ca’ is presently

highly vulnerable to nonpayment. Likely already in or very near

default with some prospect for partial recovery of principal or

interest.

PRS C : An obligation is already in default with very little

prospect for any recovery of principal or interest. PRS C is the

lowest rating assigned by PhilRatings.

WHAT IS AN ISSUER RATING?

An Issuer, company or counterparty rating is an opinion on an obligor's overall creditworthiness, apart from its ability to

pay specific obligations. PhilRatings has done issuer ratings for corporates,financial institutions and local government

units.

PRS ISSUER RATING SYMBOLS

CORPORATE ISSUER CREDIT RATING SYMBOLS AND DEFINITIONS

PRS Aaa (corp.)

A company rated 'PRS Aaa' has a VERY STRONG capacity to meet its financial commitments relative to that of other

Philippine corporates. A 'PRS Aaa' is the highest Corporate Credit Rating assigned on the PRS scale.

PRS Aa (corp.)

A company rated 'PRS Aa' differs from the highest rated corporates only to a small degree, and has a STRONG

capacity to meet its financial commitments relative to that of other Philippine corporates.

PRS A (corp.)

A company rated 'PRS A' is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than higher-rated corporates. Still, the obligor has an ABOVE AVERAGE capacity to meet its

financial commitments relative to that of other Philippine corporates.

PRS Baa (corp.)

A company rated 'PRS Baa' has an AVERAGE capacity to meet its financial commitments relative to that of other

Philippine corporates. However, adverse economic conditions or changing circumstances are more likely to lead to

a weakened capacity of the corporation to meet its financial commitments.

PRS Ba (corp.)

A company rated 'PRS Ba' has a BELOW AVERAGE capacity to meet its financial commitments relative to that of

other Philippine corporates. The company faces ongoing uncertainties or exposure to adverse business, financial, or

economic conditions, which could result in an inadequate capacity on the part of the corporation to meet its

financial commitments.

PRS B (corp.)

A company rated 'PRS B' has a WEAK capacity to meet its financial commitments relative to that of other Philippine

corporates. Adverse business, financial or economic conditions will likely impair the corporation's capacity or

willingness to meet its financial commitments.

PRS Caa (corp.)

A company rated 'PRS Caa' is CURRENTLY VULNERABLE and is dependent upon favorable business and financial

conditions to meet its financial commitments.

PRS Ca (corp.)

A company rated 'PRS Ca' is CURRENTLY HIGHLY VULNERABLE to defaulting on its financial commitments.

PRS C (corp.)

A company rated 'PRS C' is 'IN DEFAULT' on its financial commitments.

Philippine Rating Services Corporation is transparency and greater disclosure in the
the only domestic credit rating agency capital market. It supplements an internal
that is accredited by the Securities and evaluation,particularly those done by the
Exchange Commission and recognized by regulators and inventors. A credit rating
the Bangko Sentral ng Pilipinas. It is also a serves as a focused tool to differentiate
founding member of the Association of credit quality. Aside from the internal
Credit Rating Agencies in Asia (ACRAA), rating, it is also allows for continuous
which now counts thirty (30) domestic monitoring which can serve as an update
credit rating agencies in the Asian region on company performance and gives a
as its members. PhilRatings actively current snapshot on its credit standing.
participates in the development of the Having a credit rating is equivalent to the
Philippine capital market by implementing issuer announcing that both the issue and
a national credit rating system. the issuers have been subjected to, and
WHAT IS A CREDIT RATING? can withstand scrutiny. Generally,having a
A credit rating serves as an unbiased, credit rating lowers the interest rates for
independent evaluation of the the issuer.
creditworthiness of a borrower. It is a PHILRATINGS' METHODOLOGY
grading system which provides an GENERAL CREDIT RATING
objective measure of credit quality, METHODOLOGY
particularly the ability to pay the financial The rating process involves no black box,
obligations upon maturity. A credit rating no formulae, and no standard group of
considers both the business and the ratios that set minimum requirements for
financial risks. each rating category. The credit analysis
The highest ratings assigned by includes a wide range of both quantitative
PhilRatings for short-term and long-term and qualitative factors. The weight given
issues are PRS 1 and PRS Aaa, respectively, to each in the analysis of a particular
while the lowest are PRS 6 and PRS C. company varies, depending on the
THE RATING PROCESS economies, laws and customs of the
countries in which it operates, accounting
practices, the competitive situation, and
the regulatory environment. When
analyzing corporate issuers, two major
areas are addressed: business risk and
financial risk. Both cover a range of broad
categories. The following factors provide
some flavor as to the issues analyzed and
evaluated, but these are by no means
exhaustive.
BENEFITS AND IMPORTANCE OF A
CREDIT RATING
Since a credit rating is a third party opinion
on creditworthiness, it promotes
BUSINESS RISK together with a review of the extent of
Economic risk competition in, and vulnerability of, the
PhilRatings reviews the risks arising from market position.
the over-all economy in which the
company operates and gauges how the Business Diversification
dynamics of the economy affect the Business diversification addresses the
operations of the particular company. diversity of a company's products,
Accordingly, the economy's strength, business lines and customer base, and the
diversity, and volatility, as well as the benefits or weaknesses (such as
government's ability to manage the geographic or business concentrations)
economy through boom and recessionary that flow from them.
periods, are evaluated. The analysis
particularly focuses on the size, structure Management and Strategy
and growth prospects of the economy, the Managerial effectiveness and credibility
extent to which it is open to external are assessed through an evaluation of the
markets, and potential vulnerabilities. company's past performance and of the
appropriateness of management's
Industry Risk strategies within a changing environment.
Industry risk covers many elements, and Consideration is also given to the
for any industry, there will be both positive organizational structure and the extent to
and negative factors. While it is difficult to which it enhances managerial efficiency,
say which factors will prevail, PhilRatings the quality and depth of both
gauges the dynamics of the industry and management and the planning process
the extent to which those dynamics lead to (both financial and strategic). The analysis
more or less risk from the investor's point normally involves a comparison of past
of view. Accordingly, the analysis covers performance to budget or plan.
the structure of the industry, the dynamics
of competition, the regulatory and FINANCIAL RISK
legislative framework, and the Earnings Generation
government's philosophy with respect to Key considerations are earnings levels,
the industry - i.e., market-oriented or trends, and stability, as well as the
interventionist. fundamental, core, long-term earnings
power of the company. The analysis covers
Market Position operating margins, diversity and
Market position analysis involves an sustainability of income sources, cost
assessment of the benefits or weaknesses structure, and the earnings outlook. The
stemming from a company's market company's ability to cover interest and
position (e.g., pricing power, quality of other fixed charges is also considered.
business, etc.). This involves an evaluation
of the company's market share in key Cash Flow and Liquidity
business lines, and the real advantages Cash flow and liquidity analysis involves an
stemming from that market position, evaluation of the company's sources of
funds and its adequacy to meet debt
service requirements. In assessing cash
flow adequacy, the company's future Asset Quality
funding needs, such as for expansion of Credit risk across the entire spectrum of
production facilities and acquisition, are the institution's activities is evaluated
also considered. (including receivables, marketable
securities, equity investments, on- and off-
Capital Structure/Leverage balance sheet counterparty exposures,
Key considerations are the debt and equity etc.) This involves an analysis of the
mix, as well as the maturity profile of structure of the balance sheet and the
existing indebtedness. The types of equity maturity profile of the asset portfolio.
capital utilized are assessed, such as Concentrations of credit and investment
preferred shares that may be redeemable risk also are considered, along with
and thus may constitute a future need for problem loans and provisioning policy.
refinancing, and appraisal increment in
property which may be dissipated if asset
values decline. In assessing leverage, off-
balance sheet items are also considered,
such as operating leases, guarantees to
other companies, and contingent
liabilities.

Financial Flexibility
Financial flexibility is a summation of all
the preceding factors, since it is an
evaluation of a company's ability to meet
unexpected demands on funds. Factors
considered include:
the company's ability to access various
funding markets and raise capital from the
public or private sources, generally, and in
a difficult environment
the extent of internal reserves available
to cover unexpected losses
the franchise value of specific
businesses
assets where the market value is
significantly greater then the book value
ability to sell; and
the likelihood of support from private
stockholders or the government
WHAT IS AN ISSUER RATING?
An Issuer, company or counterparty rating
is an opinion on an obligor's overall
creditworthiness, apart from its ability to
pay specific obligations. PhilRatings has
done issuer ratings for corporates,financial
institutions and local government units.
PRS ISSUER RATING SYMBOLS
CORPORATE ISSUER CREDIT RATING
SYMBOLS AND DEFINITIONS
PRS Aaa (corp.)
A company rated 'PRS Aaa' has a VERY
STRONG capacity to meet its financial
commitments relative to that of other
Philippine corporates. A 'PRS Aaa' is the
highest Corporate Credit Rating
assigned on the PRS scale.
PRS Aa (corp.)
A company rated 'PRS Aa' differs from
the highest rated corporates only to a
small degree, and has a STRONG
capacity to meet its financial
commitments relative to that of other
Philippine corporates.
PRS A (corp.)
A company rated 'PRS A' is somewhat
more susceptible to the adverse effects
of changes in circumstances and
economic conditions than higher-rated
corporates. Still, the obligor has an
ABOVE AVERAGE capacity to meet its
financial commitments relative to that
of other Philippine corporates.
PRS Baa (corp.)
A company rated 'PRS Baa' has an
AVERAGE capacity to meet its financial
commitments relative to that of other
Philippine corporates. However, adverse
economic conditions or changing
circumstances are more likely to lead to
a weakened capacity of the corporation
to meet its financial commitments.
PRS Ba (corp.)
A company rated 'PRS Ba' has a BELOW
AVERAGE capacity to meet its financial
commitments relative to that of other
Philippine corporates. The company
faces ongoing uncertainties or exposure
to adverse business, financial, or
economic conditions, which could result
in an inadequate capacity on the part of
the corporation to meet its financial
commitments.
PRS B (corp.)
A company rated 'PRS B' has a WEAK
capacity to meet its financial
commitments relative to that of other
Philippine corporates. Adverse business,
financial or economic conditions will
likely impair the corporation's capacity
or willingness to meet its financial
commitments.
PRS Caa (corp.)
A company rated 'PRS Caa' is
CURRENTLY VULNERABLE and is
dependent upon favorable business and
financial conditions to meet its financial
commitments.
PRS Ca (corp.)
A company rated 'PRS Ca' is
CURRENTLY HIGHLY VULNERABLE to
defaulting on its financial
commitments.
PRS C (corp.)
A company rated 'PRS C' is 'IN DEFAULT'
on its financial commitments.