LONDON, UK: Fitch Ratings has updated its “International Local and Regional Governments (LRGs) Rating Criteria” as part of its routine criteria review process, a statement said.
Revisions to the criteria are mostly editorial in nature and there is no impact on existing ratings.
The update includes describing the effect on ratings of a distressed debt exchange event, extending and clarifying the guidance on rating LRGs above the sovereign and clarifying the use of payback ratio to justify a higher assessment of the debt sustainability score for Type A LRGs.
Other minor revisions include clarifying the reclassification of public-private partnership liabilities to adjusted debt, particularly to specify the project implementation status and multi-year minimum revenue guarantee payments, and updating various references consistent with changes in other criteria and definitions.
The LRG Rating Criteria describes Fitch’s analytical framework for analysing LRGs outside the US or their issued debt. Ratings of LRGs are determined by an assessment of their Standalone Credit Profile (SCP), reflecting a combination of the issuer’s risk profile and financial strength, and further application of potential rating factors affecting the Issuer Default Rating but not captured in the SCP.
These factors include extraordinary support for the entity from the upper-tier government or sovereign cap, as well as additional asymmetric risk consideration.
The report replaces the criteria report titled “International Local and Regional Governments Rating Criteria”, dated 27 October 2020.