25 years: Treasury & ratings
Managing a company’s credit rating effectively during an acquisition process is vital to ensuring surprising changes to the credit rating level post-acquisition are minimised. In part I, Gurdip sets out the seven steps to managing a company’s credit rating during an acquisition process, starting with project set-up and ending with the rating agency's decision.
Managing a company’s credit rating effectively during an acquisition process is vital to ensuring surprising changes to the credit rating level post-acquisition are minimised. In part I, Gurdip sets out the seven steps to managing a company’s credit rating during an acquisition process, starting with project set-up and ending with the rating agency's decision.
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12 mins 18 secs
This video outlines the first three steps to managing a company’s credit rating during an acquisition process. The initial being the project set up, which includes the production of a project plan. Secondly, to obtain a rating estimate using in-house modelling, and lastly, the initial contact with the rating agency where management should acquire certain information as described below.
Key learning objectives:
Identify steps 4-7 in the credit rating acquisition process
Outline the key areas of focus of the agency analysts
Outline the main reasons for having a rating strategy at the start of an acquisition process
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Project Set Up:
How important is it to maintain the credit rating or to have a certain credit rating level, compared with the other acquisition objectives such as minimising the purchase cost, minimising the cost of funding or the need to complete the acquisition for strategic reasons? It is important that the management agree upon this at the beginning.
Rating Estimate:
The objective of step 2 is to estimate the credit rating post-acquisition using desktop analysis. This should be started when the acquisition is first contemplated by management, months before the company decides to go ahead with the acquisition.
Initial Contact with the Rating Agency:
In step 3, the company’s management makes contact with the rating agency about the proposed acquisition in order to understand how the agency may react to the acquisition and also gather information for the ratings analysis. The best time to contact the agency is roughly 4 weeks before the acquisition is publicly announced.
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