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How Standard & Poor's Plans To Finalize--And Apply--Its Corporate Ratings Criteria

Primary Credit Analysts:

Mark Puccia, New York (1) 212-438-7233; mark.puccia@standardandpoors.com Mark S Mettrick, CFA, Toronto (1) 416-507-2584; mark.mettrick@standardandpoors.com Peter Kernan, London (44) 20-7176-3618; peter.kernan@standardandpoors.com Guy Deslondes, Milan (39) 02-72111-213; guy.deslondes@standardandpoors.com

Table Of Contents

We'll Continue To Issue Ratings During This Period The Current Criteria Remain In Effect Until The New Criteria Are Published How We Expect The New Criteria To Affect Ratings Publication Of The New Criteria Related Criteria And Research

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How Standard & Poor's Plans To Finalize--And Apply--Its Corporate Ratings Criteria

Standard & Poor's Ratings Services intends to publish its revised criteria for determining issuer credit ratings on corporate industrial companies and utilities the week of Nov. 18, 2013. The revised criteria provide market constituents with greater insight into the ratings process and enhance the comparability of our ratings through a clear, comprehensive, and globally consistent criteria framework, while maintaining our analytical judgment. (Watch the related CreditMatters TV segment titled, "How Standard & Poor’s Will Finalize And Apply Its Revised Corporate Ratings Criteria," dated Nov. 13, 2013.)

Global corporate ratings continue to perform well, so the new criteria will not significantly change our fundamental approach to credit analysis--and we expect ratings changes to be modest.

Here we provide an update on the expected ratings impact, a more detailed explanation of the implementation process, and guidance on how we intend to apply the revised criteria to our current ratings. We plan to complete our review of the applicable existing ratings within a few weeks after the publication of the criteria. We will provide an update to the market, if our publication plan changes.

We published request for comment (RfC) articles on the major components of the proposed revised ratings framework in June, July, and August (see "Related Criteria And Research" section below). During the subsequent comment period, we interacted with more than 2,000 market participants globally through roundtables, teleconferences, and one-on-one meetings. We used these sessions to increase participants' awareness and understanding of the proposed criteria changes and to fully understand the response to the RfCs. When the request for comment period ended, we published a report that summarized comments from our outreach and outlined the areas that received the most feedback (see "Standard & Poor's Summarizes Feedback On Corporate Criteria Request For Comments," published Oct. 22, 2013). We have evaluated the feedback and incorporated it in subsequent criteria revisions where appropriate.

In addition to the criteria articles outlined in Table 1, we will be publishing key credit factors articles for other industries. Key credit factors provide further guidance on the application of key aspects of the criteria to specific sectors.

Table 1

Criteria Articles To Be Published

Country Risk Assessment Methodology And Assumptions

Methodology: Industry Risk For Corporate And Public Finance Enterprises

Corporate Criteria: Ratios And Adjustments

Corporate Methodology

Group Rating Methodology For Corporate Entities

Key Credit Factors For The Regulated Utility Industry

Key Credit Factors For The Real Estate Industry

Key Credit Factors For The Transportation-Infrastructure Industry

Key Credit Factors For The Railroad/Package Express Industry

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How Standard & Poor's Plans To Finalize--And Apply--Its Corporate Ratings Criteria

We'll Continue To Issue Ratings During This Period

We expect to be able to meet all new issue and issuer credit ratings requests during this period. We don't expect any change in our existing business practices in terms of meeting ratings requests and processing ratings actions in a timely manner throughout the next few weeks. Ratings issued after the publication of the criteria will be managed according to our normal process and will be analyzed under the new criteria.

The Current Criteria Remain In Effect Until The New Criteria Are Published

The new criteria will be effective upon its publication. Until that time, we use and rate to the existing criteria for all issuers. The issuer credit ratings within the scope of the criteria, or "in-scope ratings," will be governed by the new criteria once it's published. Out-of-scope sectors will continue to be governed by the existing criteria methodology (see table 2 for the list of out-of-scope sectors). We plan to substantially complete our review of the in-scope ratings within a few weeks after the publication of the criteria.

Table 2

Out-Of-Scope Sectors*

Project finance entities

Project developers

Transportation equipment leasing

Auto rentals

Commodities trading

Investment holding companies and companies that maximize their returns by buying and selling equity over time

Corporate securitizations

Non-profit and cooperative organizations

Master limited partnerships

General partners of master limited partnerships

Japanese trading companies

Other entities whose cash flows are primarily derived from partially-owned equity holdings

The new corporate ratings methodology does not apply to these sectors due to their unique characteristics, which require a different analytical framework.

How We Expect The New Criteria To Affect Ratings

We maintain issuer credit ratings on nearly 4,500 nonfinancial corporate entities. About 4,000 of those are in-scope ratings.

Our assessment

We currently expect:

About 5% of our global ratings to change (about 200 issuer credit ratings will be affected by the criteria revision); Ratings changes to have an upward bias with upgrades outnumbering downgrades by a ratio of nearly 3:1; No sector, region, or ratings level to have a meaningful concentration of ratings changes; and

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Less than 10% of the ratings changes (fewer than 20 issuer credit ratings) to exceed one notch.

What we said in the RfC

In our initial assessment of ratings impact associated with the corporate framework RfC (see "Request For Comment:

Corporate Criteria," published June 26, 2013), we estimated:

About 10% of ratings could change as a result of the implementation of the revised methodology; Ratings changes would be relatively balanced between upgrades and downgrades, with the exception of utilities where we noted that there could be a positive bias; No sector, region, or ratings level would have a meaningful concentration of ratings changes; and Less than 10% of the ratings changes would exceed one notch.

We said that we could make revisions to the proposed methodology RfC that could change our initial ratings impact assessment. This has partially contributed to the change between our current assessment and our initial assessment.

What has changed between the RfC and our current assessment

We have made meaningful but not substantive revisions to the proposed criteria based on more comprehensive testing on our universe of in-scope issuer credit ratings, internal feedback, and market feedback received during the RfC period. We will be highlighting the specific changes when the criteria are published.

Publication Of The New Criteria

We will likely publish the new criteria during the week of Nov. 18. Any rating issued after the publication of the new criteria will be governed by the new criteria. Any new ratings that are in process will be governed by the new criteria also. We will post the criteria articles (see table 1) on our dedicated public website www.standardandpoors.com/criteria as well as on RatingsDirect.

The process of placing issuer credit ratings on CreditWatch

Upon the publication of the new criteria, Standard & Poor's will assign the under criteria observation (UCO) identifier to approximately 4,000 issuer credit ratings. This indicates that the ratings are being reassessed due to the introduction of new criteria (see "Standard & Poor's Announces "Under Criteria Observation" Identifier For Ratings Potentially Affected By Criteria Changes," published May 7, 2013). The addition of the UCO identifier to a rating does not change that rating's definition or our opinion about the issue's or issuer's creditworthiness. Public ratings placed on UCO will be available on our public website, www.standardandpoors.com. The UCO identifier will remain in place until the conclusion of the review under the new criteria, at which time we'll place the affected ratings on CreditWatch and remove the UCO identifier from the unaffected ratings.

At this stage, we believe the review should take approximately five business days. We then expect to place approximately 200 (5%) issuer credit ratings (the "affected" issuers) on CreditWatch to indicate the possibility that these ratings are likely to change. We aim to resolve the CreditWatch placements by mid-December, although a few placements may be resolved in early 2014.

We will also identify the issuer credit ratings that will not be affected by the new criteria and will not have a rating change (the "unaffected" issuer credit ratings) in a separate commentary, which will state that the UCO identifier has

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been removed.

Expedited reviews

Upon the publication of the new criteria, we plan to expedite our reviews of any recently rated issuers (between Nov. 13, 2013 and the publication of the new criteria) to remove the UCO identifier.

How we'll communicate our ratings actions

We will place all affected ratings on CreditWatch, as a result of the new criteria. The CreditWatch placements will be communicated via regional press releases, which we plan to publish five business days after the release of the new criteria. All issuers whose ratings we place on CreditWatch will be contacted before publication of the press release, as per our existing process. No ratings will change at this point, unless there is a market or other event requiring a rating action. The affected ratings will be identified by the CreditWatch placement, which will specify that the CreditWatch placement is due to the application of the new criteria.

We will remove all unaffected ratings from UCO, and publish regional press releases indicating that the unaffected ratings have been reviewed under the new criteria, that the ratings are unaffected by the new criteria, and that the issuers have been removed from UCO. These press releases will be done in conjunction with the CreditWatch press releases.

Next steps for affected credits

We plan to remove almost all affected ratings from CreditWatch within a month after the CreditWatch placement. Our normal process regarding CreditWatch resolutions will be in effect. For example, we will consider the CreditWatch action in light of the issuers' current circumstances and future prospects. We will have a discussion with each company about the aspects of the criteria that are major factors in the company's ratings analysis, and meet with issuers if necessary. We will assign the final ratings and remove the ratings from CreditWatch through research update articles on each issuer.

Next steps for unaffected credits

Issuers whose ratings will not change as a result of the new criteria will be contacted and informed of the rating review. Surveillance and publication of these ratings will continue according to our usual procedures, but under the new criteria. We also plan to discuss with issuers their relative positioning under the new framework and discuss their rating headroom.

Related Criteria And Research

Request For Comment: Group Rating Methodology: Corporate Entities, Aug. 12, 2013 Request For Comment: Key Credit Factors For The Transportation Infrastructure Industry, Aug. 9, 2013 Request For Comment: Key Credit Factors For The Railroad/Package Express Industry, Aug. 5, 2013 Request For Comment: Methodology And Assumptions Of Country Risk For Non-Sovereign Ratings, July 31, 2013 Request For Comment: Corporate Criteria, June 26, 2013 Request For Comment: Methodology: Industry Risk For Corporate And Public Finance Enterprises, June 26, 2013 Request For Comment: Corporate Criteria: Ratios And Adjustments, June 26, 2013 Request For Comment: Key Credit Factors For The Global Regulated Utility Industry, June 26, 2013

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Request For Comment: Key Credit Factors For The Real Estate Industry, June 26, 2013

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