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Sovereign Credit Risk

November 28 - 29, 2018
EUR 1,400
Prague, NH Hotel Prague
Ron Slomovits
    Training objectives:
  • Analyse sovereign debt issuance in today’s capital markets
  • Interpret macroeconomic and other quantitative data which impact sovereign credit ratings
  • Integrate qualitative risk factors into the risk assessment
  • Measure the likely impact of sovereign credit rating on the evaluation of banking system support
  • Differentiate the rating methodologies for supranational agencies from those of sovereign obligors
  • Appreciate how the rating agencies assess risks
  • Discuss the UN principles on distressed sovereign debt recovery and legal process
  • Define situations of default with respect to international sovereign debt and domestically place sovereign debt
The seminar enables the participants to deepen their expertise about sovereign credit risk and thoroughly apply the rating agency’s methodologies and modus operandi.

The two-day-seminar discusses a broad variety of rating agencies’ criteria for sovereign obligors and supranational agencies. Through detailed case studies the participants analyse how Standard & Poor’s applies its own methodologies, and which questions remain unanswered in public rating reports. The seminar will also touch on other rating agencies’ methodologies in order to identify general trends on specific entities’ rating factors and qualitative adjustments. Further participants will comprehend to read between the lines in rating reports and be able to form their own opinions about credit risk of specific sovereigns of their interest.

Starting position:
International rating agencies assess sovereign credit risk according to their own methodologies and criteria. Consequently, even taking into account the same set of hard fact data, rating outcomes may vary significantly from one rating agency to another. The large number of rating factors, and the complex interrelationships between various entities’ ratings, taking into account different sectors such as Financial Institutions and Local Governments, make it very difficult to track rating decisions and almost impossible to predict them.

The two-day seminar deals with the individual rating factors and thus the basic sovereign rating criteria on one hand, on the other hand practical examples in the form of detailed case studies for rated sovereigns will lead participants to in-depth knowledge of the rating agencies’ world of credit risk. In addition, the seminar discusses a selection of current ratings, in order to compare them qualitatively and quantitatively. Furthermore, the seminar covers current events and will evaluate how they might impact on specific sovereigns’ credit risk.

Added value:
The aim of the seminar is giving participants a thorough analytical perception of sovereign credit risk and discussing how they interrelate with ratings of other sectors (e.g. banking system). The detailed work on the case studies allows participants to break down far-reaching events for sovereigns to a single credit rating and use the knowledge for each individual own purpose. By guiding the participants through the various sovereign rating methodologies, the seminar explains how rating agencies work in detail and how they derive their rating decisions. This facilitates the participants to anticipate rating changes and initiate appropriate measures on a timely basis.

Wednesday, November 28

09.00 - 09.15 Welcome and Introduction

A global overview about current ratings and their relevant peer groups, as well as international rating agency criteria for various sectors.

09.15 - 12.00 Session 1: Standard & Poor's sovereign rating criteria:

Sovereign indicative rating level

  • Institutional and economic profile
    • Institutional assessment
    • Economic assessment
  • Flexibility and performance profile
    • External assessment
    • Fiscal assessment
    • Monetary assessment

Foreign-currency vs. local-currency sovereign rating

After completing Session 1, participants will be able to analyse a sovereign's institutional effectiveness, considering factors such as predictability of policymaking, external security risks, etc. The economic assessment will help participants to identify the key driver's for the economic development which is often the long-term basis for sovereign creditworthiness. The focus is identifying potential economic volatility or concentration, stemming e.g. from above-average reliance on receipts from commodities.

Participants will further be able to analyse the financial flexibility of sovereigns, taking into account factors such as the sovereign's external position, which gives the participants the ability to inspect the sovereign's currency status and its external liquidity, relative to the rest of the world.

The second important part of assessing a sovereign's financial flexibility is the fiscal assessment, meaning assessing the effect of an increasing/decreasing general government debt burden and relate it to the country's respective funding and debt structure, contingent liabilities, etc. The session will also explain the difference between the various debt definitions, such as net external debt burden and general government debt, including identifying their sustainability and early warning signs.

After completing the session, participants will further be able to explain the monetary assessment - which is the third part of assessing a sovereign's financial flexibility - including its factors such as the exchange rate regime, credibility of monetary policy and connect it to a country's development level of financial system and capital markets.

Further the participants will be able to differentiate between foreign currency and local-currency debt in order to apply credit risk correctly on a specific financial institution's exposure.

12:30 - 13:30 Lunch

13:30 - 16:30 Session 2: Other relevant methodologies

  • Guarantee criteria
  • Rating Partially Guaranteed Sovereign Debt
  • Banking Industry Country Risk Assessment Methodology and Assumptions (BICRA)
  • Bank system support
  • Bank Capital Methodology and Assumptions
  • Rating Implications of Exchange Offers and Similar Restructurings

After completing session 2, participants will be able to compare different forms of guarantees and interpret them in the light of a sovereign's banking system. Participants will also be able to relate rating implications of exchange offers and make use of the information for their internal purposes.

16:30 - 17:00 Recap

Thursday, November 29

09:00 - 09:45 Recap

09:45 - 11:45 Session 3: Standard & Poor's rating criteria for:

  • Multilateral Lending Institutions and Other Supranational Institutions Ratings Methodology
  • Government-Related Entity (GRE) methodology
  • Rating above the Sovereign criteria
  • Use of Credit Watch and Outlook

After completing session 3, participants will be able to utilize rating methodologies of different sectors, including supranational institutions and government-related entities and use them consistently together with the rating agencies´ rating above the sovereign criteria. Participants can also select to deep-dive into the use of credit watch and outlook.

11:45 - 12:30 Start of case studies

12:30 - 13:30 Lunch

13:30 - 16:30 Session 4: Case studies

Compare two rating reports, prepared as case studies

  • Read the reports and mark the most important rating factors.
  • Conceive additional information, which is not rating relevant.
  • Find out which rating factors are not described in the report at all, and what the reason could be.
  • Comprehend the rating reports between the lines, i.e. to discover not obvious information.
  • Detailed analysis of rating factors that could go up or down in the next 12-24 months.
  • Find rating agencies' mistakes and ambiguities in the reports.

After completing session 4, participants will be able to retrieve the information in the latest rating reports and examine how rating agencies assess credit risk. The participants will discover which information rating agencies share and which information potentially remains encrypted, including categorizing the relevant rating factors and qualitative adjustments. This will lead participants to form their own opinion about credit risk on selected sovereigns.

16:30 - 17:00 Recap, Evaluation and Termination of the Seminar

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