1 Techniques for Effectively Managing Credit Relationships: Achieving the “Right” Rating Next Page To Advance: Click Screen Anywhere or Click Next To Return to Web Page: Click “Back” on the Internet Search Bar

2 What is the Right Rating? The “Right Rating” for any organization is the rating that allows it to implement its business strategy without financial constraints From a corporate governance perspective, management should seek to achieve a rating level that is sustainable given its business risk and strategy. Next Page Previous Page

3 Keys to Establishing & Maintaining Credibility with Rating Agencies Continuity Follow Through Balance Transparency

4 Meeting the Rating Agencies Annual, semi-annual or quarterly meetings are main communication forums Opportunity for company to tell its story and for agency to ask its questions But also a chance for dialogue and for company to question the agency Thoughtful and organized presentations establish a good basis for communication

5 Credible Written Presentations Will Include: A clear statement of business purpose and objectives An analysis of business segments - candid evaluation of competitive strengths & weaknesses - key strategies Explanation of accounting policies, financial policies and strategies )

6 Credible Written Presentations Will Include: A discussion of financial goals and expectations 1) explain key assumptions (macro/micro) 2) build bridges from the past 3) provide evidence of flexibility & contingency planning Appropriate comparisons (slide 2 of 2)

7 Successful Meetings Require Advance preparation Having the right people present Expanding on written materials, not reading them Answering questions directly or not at all Asking questions

8 Talking But Not Communicating Company’s Agenda 1) Rapid growth 2) Efforts to enhance shareholder value 3) external influences on performance 4) belittle competitors 5) success of last financial deal Rater’s Agenda 1) Cash flow predictability 2) evidence of contingency planning 3) take responsibility for performance 4) respect competition 5) appropriateness of financial policies

9 Current Rating Agency “Hot Buttons” Corporate Governance Operational Risk Liquidity & Funding Risks

10 Corporate Governance Ownership Issues 1) transparency of ownership 2) owner’s influence Relationships with Financial Stakeholders 1) shareholder meeting & voting procedures 2) protection of minority owners’ rights Information Disclosure & Transparency 1) Quality of disclosure 2) Timeliness & ease of access to information 3) Independence & credibility of auditors Board of Directors 1) Structure 2) Responsibilities 3) Effectiveness

11 Operational Risk The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events - Basel definition

12 Operational Risk Internal fraud External fraud Employment practices & workplace safety Clients, products & business practices - i.e. fiduciary breaches, “rogue” trading, money laundering Damage to physical assets Business disruption & system failures Execution, delivery & process management failures

13 Liquidity & Funding Risks Internal liquidity - core earning power Quality of external liquidity supports Dependence on purchased funds Dependence on refinancing to meet maturing debt Magnitude and timing of contingent cash demands, particularly triggers

14 Conclusion Ratings have always been a balance between quantitative and qualitative inputs The trend, however, has increasingly been towards qualitative inputs being given greater weight Therefore, company management can and will have a greater effect on rating decisions, both positively and negatively