Private Credit Assessment

MPFASL Private Credit Assessment (PCA)

MPFASL Private Credit Assessment (PCA) is a product developed for the in-house consumption of the corporates who seek to understand the credit profile of the company. PCA helps corporates to understand the credit profile of their companies in a detailed manner and equips them to engage in a meaningful dialogue with the Credit Rating Agencies (CRA). Besides, an in-house preparedness by way of PCA also aids in preparation of information sought by CRAs during the credit rating of their borrowings, as per the regulatory norms. PCA has Two parts –

Fundamental Assessment

PCA is a fundamental assessment of the credit profile of the company. MPFASL delves upon plethora of parameters such as Promoter and Sr. Management capabilities and their track record in the business, Financial and Operations risk assessment, Industry and Peer assessment as well as any project risk assessment. The PCA is akin to the Credit Rating done by the Rating Agencies, however, the PCA would be a private report for internal consumption of the company. Under PCA, MPFASL would carry out evaluation of various parameters, as –

  • Promoter and management capabilities and track record. MPFASL would assess the ability of the promoter / management to withstand market volatilities and guide the company operations in the right direction via financial and /or non-financial supports.
  • With credit risk perspective in mind, MPFASL does operational assessment so as to understand the operational stability as well as understand the embedded risk in the entire operating cycle of the company. The operational assessment also evaluates the preparedness of management to mitigate / minimise the operational risks. MPFASL highlights various steps taken by the management to improve the company’s operational efficiency.
  • Financial analysis – The focus is towards identify and demonstrate the predictability and stability in the future cashflows based on the past track record of the financial parameters. MPFASL would evaluate financials from the “Probability of Default” perspective, which is sought by the Credit Rating Agencies. The aim is to assess the financial strength (debt service indicators) of the company from the point of view of ability to make timely payment of the dues. Evaluation of the Liquidity parameters is the key to assess the long-term fundamentals of the company.
  • Industry analysis – The assessment of the Industry parameters is equally important as these are the “out-side” factors which are somewhat out of control of the management. MPFASL would evaluate the company operations in the respective industry and would try to find out the right peer set so that there is an “apple to apple” comparison.

Apart from the independent assessment, MPFASL would also conduct the discussion with the senior management of the company to understand the management perspective on the business and the credit profile of the company.

Rating Triggers

Along with the fundamental assessment of the borrower’s credit profile, MPFASL provides a detailed report highlighting the rating weaknesses which might hamper its credit rating. MPFASL would bifurcate these Rating weaknesses into Long term and short term and would provide a likely roadmap to address these rating weaknesses.

How does PCA help?

  • In-house Credit Assessment – The company would gain detailed insights about the entire credit assessment process of the Rating Agencies. MPFASL-PCA is in line with the credit assessment done by the CRAs. Having done an in-house credit assessment, the company would be better equipped to handle the rating assignment with the Rating Agencies. Besides, the management would be presented with a detailed SWOT analysis which would help them to focus on the rating related factors so as to keep their credit profile stable.
  • Rating Guidance – MPFASL PCA would provide insights about the prevailing Rating weaknesses and areas of improvement. The company can use the PCA to strategies about ways and means to overcome the Rating weaknesses.
  • Rating targets – MPFASL PCA would not only do the “As-is-where-is” basis credit assessment but would also provide futuristic views on key parameters which would be critical with respect to future rating movements.

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