Credit risk assessment, pricing, and structuring for syndicated loans
S&P Global Ratings’ Loan & Recovery Ratings
S&P Global Ratings’ loan ratings are widely used in the loan market for credit risk assessment, pricing, and structuring of syndicated loans. A loan rating is the issue-specific rating assigned to a borrower’s syndicated loan. These ratings give the market an important recovery assessment that helps to improve the distribution of syndicated loan new-issuance.
Recovery ratings are used in a variety of ways in the collateralized loan obligation (CLO) market. They are an integral input into S&P Global Ratings’ CLO analysis and ratings. CLO asset managers use recovery ratings as a key consideration in trading decisions as it relates to their portfolio parameters. CLO investors use recovery ratings to monitor the overall expected recovery of their portfolio of leveraged loans.
S&P Global Ratings has assigned ratings on syndicated loans since 1996 across different sectors and borrower types, including investment-grade, speculative-grade, infrastructure, and project-finance loans. S&P Global Ratings currently rates syndicated loans of more than 2,100 borrowers totaling close to $32 trillion.
Why Clients Obtain Loan Ratings
|Efficient and transparent market pricing|
|Increased liquidity in the secondary loan market|
|Investor base broadened to new classes of lenders|
|Quick assessment of the effect of a loan rating resulting from contemplated changes to a borrower’s capital structure|
|Improved terms and efficiencies with vendors|
|Third-party, unbiased recovery assessment in a heightened regulatory and credit risk environment|
Loan Ratings Process
In the loan ratings process, S&P Global Ratings reviews revolving lines of credit, first-lien term loans, second-lien term loans, and other subordinated debt. Leveraged loan ratings are accompanied by a full recovery rating analysis based on S&P Global Ratings’ ratings scale and methodology.
The table below illustrates how a recovery rating is used to adjust the Issuer Credit Rating, the anchor rating in the loan process, for an issuer with a speculative-grade issuer credit rating.
|Recovery Rating||Recovery Description||Nominal Recovery||Issue-Level Rating Notched from Issuer Credit Rating|
|1+||Highest expectation for full recovery||100%||+3 notches|
|1||Very high recovery||90%–100%||+2 notches|
|2||Substantial recovery||70%–90%||+1 notch|
|3||Meaningful recovery||50%–70%||0 notches|
|4||Average recovery||30%–50%||0 notches|
|5||Modest recovery||10%–30%||-1 notch|
|6||Negligible recovery||0%–10%||-2 notches|
Note: Recovery ratings are capped in certain countries to adjust for reduced creditor recovery prospects in these jurisdictions. The table applies to 23 countries designated as Jurisdiction A by S&P Global Ratings.