Benefits of a Credit Rating

Now that we have a good grasp of what a credit rating is, a sense of the process, and the various terms used in the credit rating language, the final article of our series explores the benefits of obtaining a credit rating for an issuer or a specific debt issue.?

Communication of Entity’s Ability to Repay Debts?

First and foremost, credit ratings provide a clear and concise snapshot of an entity's financial health and its ability to repay debt via cashflows. Ratings offer valuable insights into the risk associated with lending money to an entity.? While it is not a recommendation to buy, sell or hold an investment, lenders/investors can make more informed decisions of a rated versus unrated entity.?

Access to Borrowings at Lower Interest Rates?

A high credit rating can potentially increase access to borrowings at lower interest rates. Lenders tend to be more willing to extend credit to borrowers with a proven track record of sound financial management. Lenders and financial institutions use credit ratings as a gauge of risk.? Borrowers with high credit ratings therefore can potentially qualify for financing at lower interest rates which can result in substantial cost savings over time. Lower interest rates and fees can redound to reduced interest and overall expenses.?The relationship between interest rates and ratings in the region is not as clear as in more developed markets. Despite this, entities that are considered higher credit quality will have more negotiating power. With more entities in the region getting rated and further development of regional capital markets, the relationship between ratings and interest rates should become more apparent over time. Apart from interest rates there are a host of other benefits of becoming rated.

Investor Confidence?

For businesses and governments, credit ratings influence investor confidence. A strong credit rating signals stability and reliability and thus attracts investors seeking worthwhile investment opportunities.?Most investors find independent assessments useful and use them to support their own analysis.

Commitment to High Standards of Corporate Governance??

A credit rating conveys a company's willingness to be transparent and speaks well of overall corporate governance. It enhances the company’s emphasis on transparency and alignment to best practices in the region.

Market Competitiveness?

Companies with high credit ratings may enjoy a competitive advantage in the marketplace as suppliers, vendors, and other counterparties may be more inclined to engage in business relationships with entities that demonstrate financial strength and stability.? Companies with high credit ratings may also benefit from increased negotiating power.?

Risk Management?

Credit ratings may serve as a risk management tool for both borrowers and lenders. By assessing their credit risk upfront, borrowers can identify areas for improvement and take proactive measures to strengthen their financial position. This can result in an upgrade in its credit rating and increased attractiveness for investors. Similarly, lenders can mitigate risk by carefully evaluating the creditworthiness of potential borrowers.?

Implementation of Sound Financial Management Practices?

The pursuit of a credit rating serves as a catalyst for entities to implement prudent financial management, with the objective of securing a strong rating that reflects their capacity for timely debt servicing.

In addition to the above, obtaining a rating from Caribbean Information & Credit Rating Services (CariCRIS) can result in:?

Local Insight and Expertise??

CariCRIS offers an in depth understanding of the nuances and characteristics in local and regional market, economic conditions, and regulatory environment.? A regional scale rating from CariCRIS also benchmarks the company or country against regional peers, many of whom are only rated by CariCRIS.?

Brand Recognition and Trust in the Caribbean region?

A CariCRIS rating can help further strengthen an company’s brand recognition and trust amongst Caribbean consumers and businesses and boost confidence among stakeholders regarding the company’s financial stability and commitment to the region.? A CariCRIS credit rating can increase a company’s visibility and contributes to its brand equity.?

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