EL Ratings

The corporate bond market has to play a significant role in funding the infrastructure needs of the country that are huge. Innovative structures are required to enable the bond market to do the same. Keeping in mind the need for innovative structures to enable long-term bond market investors to extend capital to infrastructure sector, CRISIL Ratings, in consultation with the Ministry of Finance and other stakeholders, developed a credit rating framework for operational infrastructure projects based on 'expected loss (EL) methodology'.

 

The ratings assigned under this framework are an opinion on the EL to be incurred over the life of the debt instrument and take into account not only the probability of default, but post default recoveries too.

 

The ratings are assigned on an innovative seven-point  EL rating scale ranging from CRISIL  EL 1 to CRISIL  EL 7, with EL 1 representing the lowest expected loss, and EL 7, the highest. 

 

Thus, our  EL ratings complement conventional credit ratings (based on the probability of default approach) by taking into account the specificities of operational infrastructure projects that contribute towards post default recovery.

 

The ratings focus on recovery of dues to investors and lenders over the life cycle of an infrastructure project, by factoring in the possibility of refinance/restructuring, and the presence of embedded safeguards (such as termination payment), thus enabling them in effective pricing of the credit risk.