Fitch Updates Country-Specific Treatment of Recovery Ratings Criteria
OREANDA-NEWS. Fitch Ratings has updated its "Country-Specific Treatment of Recovery Ratings Criteria" to clarify the treatment of Chinese offshore issuers.
Although China is now classified as a Group C country - meaning that ratings of secured or enhanced debt may be capped at one notch above the Issuer Default Rating (IDR) in both investment grade and speculative grade - Fitch continues to cap recoveries at 'RR4' (no uplift from the IDR) for Chinese domiciled corporates that issue offshore, generally utilising SPVs or holdcos, but without upstream guarantees from an onshore operating entity.
The cap is applied due to a very limited history of default and recovery for entities with this structure. Fitch believes that this lack of track record, combined with the additional complexity involved in the recovery process (relative to direct access to onshore assets or the benefit of a formal guarantee structure), merits the maintenance of an average recovery cap for these entities.