Rating Definition and Meaning | Rating Services | China Chengxin (Asia Pacific) Credit Ratings Company Limited

Credit Rating Definition

A credit rating is the analytical result of current credit worthiness and forward-looking opinion on the credit risk of a rated entity or a debt issue. Any credit rating assigned by an independent credit-rating agency should be based on the principles of independence, fairness, and objectivity.

The Meaning of Credit Rating

Credit rating reflects the probability of default and prompts the credit risk and conditions of a rated entity or debt issue
Issuers with equal ratings may have similar but not identical credit worthiness and strength
Credit rating is not a recommendation for investors to buy, sell, or hold debt securities, nor a measurement of market value of the rated entity or the rated debt issue
Credit rating contains the concept of expected loss
Credit rating is a professional opinion on the credit worthiness only; it should not be regarded as the only reference for an investment decision
Debt issues of the same credit rating do not imply absolute equal credit worthiness
Credit rating reveals and ranks specific risks, but does not cover all risks embedded in the rated entity or the rated debt issue
Credit rating does not indicate the specific tolerance level for any investor

CCXAP’s View on Credit Rating

Credit rating is a forward-looking opinion on the creditworthiness of a rated entity or a debt issue. The higher the credit rating of a rated entity or debt issue, the better is its creditworthiness.
Creditworthiness is measured multi-dimensionally into multi-levels; therefore, there is no single straightforward formula for the comprehensive analysis of risk factors.
Probability of default, the core meaning of a credit rating, is dependent on the capacity and willingness of a rated entity to meet its financial obligations on time.
Ranking of a debt issue, credit outlook, and recoverable ability (after an event of default) are the key determinants of a credit rating.
In the event of a severe economic crisis, a rated entity with a higher credit rating can have a stronger capacity to endure adverse economic conditions to a larger extent, whereas a lower rating implies a weaker capacity to endure severe economic adversity.

CCXAP’s Credit Rating Symbols and their Meaning

China Chengxin (Asia Pacific) Credit Ratings Company Limited uses simple, consistent, and comparable rating symbols expressed in letters to represent the credit worthiness of rated entities and rated debt issues.

A. Long-Term Credit Ratings

A long-term credit rating refers to a rating for a period of more than 12 months.

Rating Symbol	Definition
AAA_g	Capacity to meet commitments on short-term and long-term debts is extremely strong. Business is operated in a virtuous circle. The foreseeable uncertainty on business operations is minimal.
AA_g+ AA_g AA_g-	Capacity to meet short-term and long-term financial commitments is very strong. Business is operated in a virtuous circle. Foreseeable uncertainty in business operations is relatively low .
A_g+ A_g A_g-	Capacity to meet short-term and long-term commitments is strong. Business is operated in a virtuous circle. Business operation and development may be affected by internal uncertain factors, which may create fluctuations in profitability and solvency of the issuer.
BBB_g+ BBB_g BBB_g-	Capacity to meet financial commitment is considered adequate and capacity to meet short-term and long-term commitments is satisfactory. Business is operated in a virtuous circle. Business is affected by internal and external uncertainties. Profitability and solvency may experience significant fluctuation. Principal and interest may not be sufficiently protected by the terms of agreement.
BB_g+ BB_g BB_g-	Capacity to meet short-term and long-term financial commitment is relatively weak. Financial commitment towards short-term and long-term debts is below average. Status of business operations and development is not good. Solvency is unstable and subject to sustainable risk.
B_g+ B_g B_g-	Financial commitment towards short-term and long-term debts is bad. Business is affected by internal and external uncertain factors. There are difficulties in business operations. Solvency is uncertain and subject to high credit risk.
CCC_g	Financial commitment towards short-term and long-term debts is very bad. Business is affected by internal and external uncertain factors. There are difficulties in business operations. Poor solvency with very high credit risk.
CC_g	Financial commitment towards short-term and long-term debts is extremely bad. Business operations are poor. There are very limited positive internal and external factors to support business operation and development. Extremely high credit risk is found.
C_g	Financial commitment towards short-term and long-term debts is insolvent. Business falls into a vicious circle. Very limited positive internal and external factors are found to support business operations and development in positive cycle. Extremely high credit risk is seen and is near default.
D_g	Unable to meet financial commitments. Default is confirmed.

B. Long-term Credit Rating Outlook

A rating outlook is the medium- and long-term trend of the credit rating of a rated entity. In formulating a rating outlook, CCXAP considers the potential change in economic and commercial factors from a medium- and long-term perspective for a period of 12 to 18 months.

Positive	Indicates a rating with an ascending trend
Negative	Indicates a rating with a descending trend
Stable	Indicates the rating is likely to be stable
Developing	Indicates a rating may be raised, lowered or affirmed

C. Rating Watches

Ratings are placed on rating watch when there is a potential, but not guaranteed, change of rating/outlook in the near term. A rating watch is typically event-driven, which the implications of unexpected event could not be determined immediately and additional information is required for further analysis. There are three types of rating watch:

Positive indicates a rating may be raised;
Negative indicates a rating may be lowered;
Developing indicates a rating may be raised, lowered or affirmed.

D. Short-Term Credit Ratings

A short-term credit rating refers to a rating for a period of less than 12 months.

Rating Symbol	Definition
A_g-1	Capacity to meet short-term financial commitments is extremely strong with a high level of safety.
A_g-2	Capacity to meet short-term financial commitments is strong with a high level of safety.
A_g-3	Capacity to meet short-term financial commitments is average but the safety may be easily affected by adverse business, financial, or economic conditions.
B_g	Capacity to meet short-term financial commitments is weak with a high probability of default.
C_g	Capacity to meet short-term financial commitments is very weak and the probability of default is very high.
D_g	Unable to meet financial commitments. Default is confirmed.

E. Mapping of Long-term and Short-term Credit Ratings

CCXAP’s long-term credit ratings can be mapped with the short-term credit ratings, as follows:

Long-term Credit Ratings	Short-term Credit Ratings
AAA_g	A_g-1
AA_g+	A_g-1
AA_g	A_g-1
AA_g-	A_g-1
A_g+	A_g-1
A_g	A_g-1 or A_g-2
A_g-	A_g-1 or A_g-2
BBB_g+	A_g-2
BBB_g	A_g-2
BBB_g-	A_g-3
BB_g+	A_g-3 or B_g
BB_g	B_g
BB_g-	B_g
B_g+	B_g
B_g	B_g
B_g-	B_g
CCC_g	C_g
CC_g	C_g
C_g	C_g

F. Structured Finance Instrument or Obligor

In order to distinguish from other ratings, the “sf” subscript is assigned to all structured finance instruments or obligors rated by CCXAP (For example: sfAAAg). The addition of a subscript does not change the definition of CCXAP’s credit-rating symbols.

Definition of Default

CCXAP's definition of default includes the following events:

missed or delayed interest or principal payment (unless such payment will be made within agreed grace period);
distressed debt exchange on financial obligation with a new or restructured debt, a package of securities, or other assets; or
bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedures.

Withdrawal, Suspension, Discontinuation of Credit Ratings

CCXAP may withdraw or suspend a credit rating of a rated entity or rated target at any time on its sole judgment. CCXAP determines the timing of the withdrawal or suspension of a credit rating and the issuance of related notices.

CCXAP may withdraw a credit rating at the request of a rated entity under certain situations, but it will not be done at the request of the rated entity if it is to avoid an impending change of credit rating.