Fitch Ratings Policy and Structured Finance Review

A comprehensive set of practice flashcards covering vocabulary, policies, and Structured Finance concepts from the Fitch Ratings lecture transcript.

Fitch Ratings Core Principles

A set of fundamental values the organization is dedicated to: objectivity, independence, integrity, and transparency.

RPM (Rating Process Manual)

A document containing the minimum policy and procedural requirements for Analysts globally across all Rating types and Outlooks.

Exception

A permitted departure from established policies or procedures that must be approved in advance of the departure.

Incident

A departure from policy that cannot be or was not approved in advance, requiring review or acknowledgment by senior staff afterward.

Associate Analyst (AA) Restrictions

Analysts in this role are ineligible to be primary, secondary, or surveillance analysts and are prohibited from voting at rating committees.

Management Meeting Attendance Rule

The requirement that a minimum of $2$ Analysts must attend meetings related to the Rating process with issuers or third parties.

Rating Cart

A web-based application designed to stage and record Rating committees and actions by creating individual records for each planned action.

Ratings Desk

A team of operations specialists who assist with reviewing Rating Action Commentaries ($RACs$), verifying consistency, and disseminating Private Rating letters.

Expected Rating

A rating assigned when the outcome is sensitive to the finalization of terms in draft documents or the fulfillment of other contingencies at closing.

Four-week Rule

A provision allowing the delay of a Rating publication by up to $28$ days from the final committee date without requiring a new committee.

International Rating Review Interval

The requirement that these ratings must be reviewed by a committee at least once every $12$ months.

Private Rating

A credit rating that is not published on the public website and is provided directly to the requesting party for internal or transaction-specific purposes.

Credit Opinion

A point-in-time view of creditworthiness that does not require the same level of committee oversight or ongoing monitoring as a formal credit rating.

Review - No Action

An option for monitored ratings taken to committee that result in no change, provided key drivers and material data remain consistent with the prior review.

Issuer Notification (EU/UK)

The formal requirement to inform an issuer in writing of a rating decision at least $24$ hours before publication.

Rating Watch

A designation indicating a heightened probability of a rating change, typically reviewed and published within $6$ months.

Rating Outlook

An indicator of the likely direction a Rating will move over a $1$ to $2$ year period.

Rating Confirmation

An assessment of whether proposed limited changes to terms or provisions would impact an existing rating, often resulting in a confirmation letter.

International Committee Quorum

A group of $5$ to $9$ voting members, where more than half must be titled Director or above.

Recusal Period

A length of $6$ months following the last date of employment during which a new hire cannot participate in committees related to their previous employer.

Email Committee

A committee conducted via electronic mail for routine matters such as affirmations or resolving minor questions, provided no material credit events have occurred.

RAC (Rating Action Commentary)

A publication used to announce and explain rating actions, including upgrades, downgrades, affirmations, and outlook changes.

NRAC (Non-Rating Action Commentary)

A commentary used for market developments or publications that does not disclose any rating actions.

European RAC Review Period

The requirement allowing issuers at least $24$ hours during business hours ($9:00\text{ am}$ to $5:30\text{ pm}$) to review a draft commentary.

Screening Committee (SC)

A cross-disciplinary group that reviews proposals for new financial products to determine the feasibility of assigning an international scale rating.

BRM (Business and Relationship Management)

The department responsible for commercial activities and fee negotiations, which is strictly segregated from analytical staff.

Tip

Non-public information received on a confidential or non-confidential basis regarding a rated entity's conduct that may impact its credit profile.

Market Rumor

Publicly available information, including via social media, regarding a rated entity's conduct that may affect its credit profile.

AFS (Analytical File Share)

A SharePoint application used by analytical staff to store documents and restrict access by management line, region, and recusal status during the rating process.

DM (Document Manager)

The application used for the long-term retention and management of documents after the rating process is completed.

Conduct Complaint

A complaint regarding compliance with securities laws or Fitch Ratings' policies and procedures.

Analytical Complaint

A complaint regarding credit ratings, models, methodologies, or other products.

Master Criteria

Published reports that define the basic foundation for ratings within a broad asset group, such as corporate or structured finance.

Bespoke Criteria

Rating drivers and assumptions applicable to a specific sector or group of transactions where fewer than $10$ entities are outstanding.

Exposure Draft

A document outlining proposed material criteria changes published for public consultation for a minimum of $1$ month.

Criteria Variation

The adjusted application of criteria to address a specific Ratings Variable necessary to reflect the unique risks of a specific transaction.

Error

A mistake in criteria or models where there is a substantial likelihood that correction will result in a change to one or more outstanding ratings.

Model Finding

An inaccuracy in a model or criteria that is unlikely to significantly alter the model output.

Confidential Analytical Information

Non-public information entrusted to Fitch by a Rated Entity specifically for evaluation, issuance, and review of Credit Ratings.

MNPI (Material Nonpublic Information)

Confidential Information that a reasonable investor would consider important in deciding whether to buy, hold, or sell a security.

Credit Rating

An opinion on the ability of an entity or instrument to meet its financial commitments, focusing exclusively on credit-related risks.

'sf' Suffix

An identifier appended to an issue rating to indicate it is assigned to a structured finance transaction.

National-Scale Rating

A relative ranking of credit risk within a single country, adapted to the specific economic environment and not globally comparable.

Reasonable Investigation (RI)

The process of investigating and verifying factual elements used in rating methodologies from independent sources such as issuers or third parties.

Filtering Panel

A panel convened to determine if a new asset class or unique structure can Proceed, Not Proceed, or should be referred to a Screening Committee.

ESG Relevance Score (ESG.RS)

A scoring system ranging from $1$ to $5$ that communicates how environmental, social, and governance factors affect a rating decision.

De-linking

The distinguishing feature of structured finance that isolates an asset pool's credit risk from the corporate credit risk of the originator.

Subordination

A type of credit enhancement where losses are absorbed first by more junior tranches to protect senior tranches.

Overcollateralisation (OC)

A form of credit enhancement where the value of the underlying asset pool exceeds the value of the issued securities.

Operational Review

An evaluation to assess the impact that originators, servicers, and asset managers have on collateral performance.

MIR (Model-Implied Rating)

An output produced by a model that indicates a credit rating used as one component of rating committee analysis.

Rating Cap

A limitation on the highest possible rating assigned to a transaction due to risks like industry concentration or counterparty dependency.

Credit Risk (Counterparty)

The risk associated with a counterparty's financial inability to meet obligations, such as failing to provide liquidity support or hedge risk.

Operational Risk (Counterparty)

The risk arising from a counterparty's inability to perform critical functions such as servicing or transaction administration.

TAB (Transaction Account Bank)

An entity holding funds in the name of the issuer, typically assessed using a Deposit Rating ($DR$).

PIR (Payment Interruption Risk)

The risk that a servicer or bank default will disrupt collections and impair the issuer's ability to meet required payments.

Commingling Risk

The risk of losing funds held with a defaulting servicer that are mixed with the entity's other funds.

Basis Risk

The interest rate risk that occurs when portfolio assets and note liabilities reference different interest reference rates.

Equilibrium Rate

The level at which Fitch believes interest rates would settle in a state of economic calm and target inflation.

T&C Risk (Transfer and Convertibility)

The risk that a sovereign authority might restrict the movement of funds across borders or the conversion of local currency into foreign currency.