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Authors

Susan Thompson

Publication Date

Winter 8-1-2012

Abstract

A correlation exists between the credit rating of a project and the likelihood of project finance default. Project ratings provided by rating agencies are intended to express the level of certainty with which project lenders can expect to receive timely repayment of principal and payment of interest, in accordance with the project terms. The debt rating of a project by a rating’s agency involves collating relevant heads of risk, and analyzing each head of risk’s magnitude and likelihood of occurrence. An analysis is then performed on the effect of these risks on the project’s ability to operate and pay its debt obligations. The analytical framework utilised by a rating agency generally addresses project-level risks, sovereign risk; business and legal institutional development, force majeure risk and credit enhancements. This paper will discuss these heads of risk.

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