Corporates: General Corporate Global Rating Methodology

Table of Contents

Executive Summary

Business Risk Determinants

I. Industry Risk

II. Competitive Risk

III. Growth and Corporate Development Risk

IV. Liquidity and Financial Flexibility

V. Regulatory and Jurisdictional Risk

VI. Organizational Form, Structure & Ownership Considerations

Financial Risk

I. Size

II. Profitability

III. Cash Flow Analysis

IV. Capital Structure & Leverage

V. Interest Coverage

VI. Financial Policy

Combining Financial and Business Risk Scores

Additional Rating Determinants

Peer Comparison

Management Profile, Governance and Enterprise Risk Management

Country Risk & Transfer and Convertibility Risk

Support from Governments and Sovereign Ownership

Determining a Final Corporate Credit Rating

Issue Level Rating & Notching Analysis

Surveillance

Appendix 1 - Sub-Factor Definitions

Revenues

EBIT Margin

EBITDA Margin

Return on Assets (EBITDA / Average Assets)

Free Cash Flow / Debt

Retained Cash Flow / Debt

Debt / EBITDA

Debt/ Book Capitalization

EBIT / Interest

EBITDA / Interest

Unencumbered Assets / Total Assets

Cash as a % of Total Assets

Appendix 2 - Hybrid Instrument Equity Treatment

Introduction

Determining Equity Content

Mandatory Convertible Securities

Shareholder Loans

Holdco Payment-In-Kind Subordinated Debt

Analytical Impact of Equity Content

Reduction or Withdrawal of Equity Content

Table 1 – Illustrative Hybrid Scenarios

Executive Summary

This document describes KBRA's general rating methodology as it pertains to corporate issuers. It provides a basis for subsequent sector-specific corporate rating methodologies, which KBRA may publish from time to time. The methodology applies to companies in a broad array of industries, but excludes companies in the financial services sector (banking, insurance, broker/dealers, exchanges, etc.) and those companies covered by separate methodologies that address their specific characteristics. KBRA may also publish industry- or sector-specific rating criteria to further clarify its methodologies and assumptions for specific industries or sectors, as needed.

This methodology provides an overview of KBRA’s general approach to analyzing an enterprise and evaluating quantitative and qualitative risks. This methodology explains how these various factors are combined to form KBRA’s rating. In the rating reports for specific issuers, KBRA will elaborate on how it analyzed…

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