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Capital Markets

Debt: Market round-up

GREs get a pick-up from rating change Government-related entities (GREs) got a substantial lift from Moody's Investors Service when the credit rating agency

introduced a new methodology that seeks formally to incorporate implicit support into GREs where a government is an owner or provides some support.

Moody's has introduced a joint-default analysis for corporates, which are defined as "entities with full or partial government ownership or control, a special charter, or a public-policy mandate from a national or local government".

State shareholder support has always been incorporated to some degree but now there is a formal method that carves the rating into four components. The first is the pure credit risk analysis, the second takes into account the credit risk of the relevant government, the third is the default dependence between the two, and the fourth assesses the likelihood of government support. The joint default analysis resulted in 24 entities receiving an upgrade.

 "We have known for years that joint default risk plays a role in assessing credit. That approach was already incorporated into structured finance analysis but Moody's hesitated in introducing that into company rating analysis," says Jerome Fons, managing director of Moody's credit policy committee.

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