Fitch Updates Rating Non-Financial Corporates Above the Country Ceiling Criteria
The report outlines the considerations that may allow the ratings of a non-financial corporate issuer to 'pierce' a Country Ceiling. These criteria recognise that a sovereign may prevent private-sector corporations from converting local currency (LC) to any foreign currency (FC) under a stress scenario, and/or may not allow the transfer of FC abroad to service FC debt obligations. This is known as transfer and convertibility (T&C) risk.
Recognising these constraints, an issuer's FC Issuer Default Rating (IDR) - the ability to pay FC debt to international investors - is constrained in most cases by the Country Ceiling. When an issuer's LC IDR is above the Country Ceiling of the relevant country, the Country Ceiling serves as a cap or limit to the FC IDR of that issuer.
The legal jurisdiction from which the majority of the issuer's cash flow originates defines the applicable Country Ceiling, regardless of where the company is headquartered or legally constituted. When dealing with multinational corporations with assets, operating facilities and cash flow generation in multiple countries, the mechanism to decide the applicable Country Ceiling is based on the highest rated countries which, by itself, have a total cash flow generation sufficient to cover hard currency gross interest expense by 1.0x or more.
In order to assess whether an issuer's FC IDR can be rated above the applicable Country Ceiling, Fitch's core approach is to assess the issuer's ability to service hard currency external debt service from recurring hard currency cash flow generation or available liquidity, which the company can choose not to re-route to the country(-ies) whose Country Ceiling is applicable.