Credit Rating Agencies (CRAs) often use CreditWatch and Rating Outlook to portray the degree of likelihood of a rating change and the potential direction of the change.
A CreditWatch highlights the latent direction of a short or long-term rating. It focuses on identifiable events and short-term trends that may cause the rating to be placed under special monitoring.
Such conditions that could lead to a CreditWatch include Merger & Acquisition (M & A), Recapitalisation, Regulatory Action, Performance Deterioration, or an anticipated operating development.
Ratings can also be placed on CreditWatch when an event or a deviation from an expected trend occurs and additional information is necessary to evaluate the current Rating. Additionally, a material change in the performance of securitised assets and failure to fully determine the magnitude of the Rating impact could result in Ratings being placed on CreditWatch.
Under certain circumstances, DataPro, Nigeria’s technology-driven Credit Rating Agency, may change a Rating and place the revised index on a CreditWatch pending a review. This is done when it believes that an event or situation may result in a further change in the Rating over a very short term but requires more information to make that decision. Additionally, a Rating may be lowered and assigned a negative outlook rather than a stable one or it may be raised and assigned a positive outlook.
For Issuers & Issues with Ratings on CreditWatch, DataPro will mostly include commentary discussing what events it believes are likely to change a Rating. It will highlight the conditions under which it expects that the current Rating would stand as well.
Similar to CreditWatch, a Rating Outlook shows the possibility of a Rating change and the direction. In contrast to a CreditWatch, a Rating Outlook is an integral part of a Rating Report.
DataPro includes a Rating Outlook in all its Reports.
The Rating Outlook indicates the potential direction of a long-term credit rating over the next 12 months. In determining the Rating Outlook, consideration is given to any changes that are seen in the economic and/or fundamental business/financial conditions.
A Positive Outlook indicates that the Rating could be raised.
A Negative Outlook shows that the Rating may be lowered.
A Stable Outlook means that the Rating is not likely to change.
DataPro Ratings express a forward-looking opinion about the creditworthiness of Issuers and their obligations.