Standard operating procedure for monitoring and recognition of defaults

1. Communication with bankers: Acuite shall write to the bankers to take feedback at the time of initial rating and at periodic intervals (at least once every quarter) to ascertain timeliness in debt servicing. In cases where bankers do not respond in writing, the discussions shall be documented (through email/ letter to the banker).

2. No default statement (NDS) to be sought on a monthly basis from the Issuer in line with SEBI regulations.

3. Tracking confirmation from debenture trustee on timely debt servicing on specific ISINs rated by Acuite in line with SEBI regulations. For securities, the withdrawn rating shall be included in the computation of default rates till the completion of the 3-year cohort or the maturity of the instrument, whichever is earlier. Accordingly, Acuite shall continue to track the confirmation received from the debenture trustees on the status of debt servicing on securities even after rating withdrawal, where applicable.

4. Monitoring of Exchange website: Acuite shall also monitor the Exchange website for disclosures made by issuers with listed securities (either debt or equity) in respect of timely debt servicing.

5. Publishing of press release in case of payment default: In case of confirmation of any delay in servicing of the debt obligation, press release shall be published within timelines as prescribed under regulations.

6. Disclosure in case of non-confirmation of timely debt servicing: In case no confirmation regarding servicing of debt obligation on the listed security is received by Acuite from the Debenture Trustee within 1 day post the due date, Acuite shall immediately follow up with the Issuer for confirmation of payment. In case no response is received from the Issuer within 2 days of such communication, Acuite shall publish a Press Release as per SEBI prescribed format on its website and send to all stock exchanges where the security is listed.

7. Rating agreements shall be suitably modified to incorporate Issuers responsibility to provide consent to Acuite to obtain details of the existing and/ or future borrowing of the issuer, its repayment and any delay or default in servicing of such borrowing, either from the lender or any other statutory/ non - statutory organization maintaining any such information.  Such right to access to information shall be made clear to the said external parties while seeking information.

8. Factoring in past defaults: In rare circumstances, if Acuite becomes aware of the delays that have occurred in the past and have not been recognized by way of a ‘D’ rating, the delay shall be recognized by downgrading the rating to ‘D’. The rating can be simultaneously upgraded to a non-D rating, in line with the SEBI guidelines on curing period and the SOP on curing period mentioned below.

9. Default on instruments not rated by Acuite:

In case an issuer defaults on an unrated instrument which has same seniority as the rated instrument by the Acuite,

  1. Acuite shall recognize the default in its default statistics from the rating level of the rated instrument. The rating of the rated & instrument which has not defaulted may be appropriately reviewed by Acuite.
  2. For the sake of ample clarity, it is highlighted that a default on an unrated instrument may not mean and shall not be construed as a default for computation of default statistics, if the rated instrument is credit enhanced or there is a structure around the cash flows.
  3. Acuite in its default studies shall also give out a list of all companies where ratings may not have been downgraded ‘D’, but issuer has been included in the default study due to default on unrated debt.

10.  Curing period post defaults:

  1. The curing period principle for default category ratings should apply to fresh rating assignment as well as surveillance assignments and usually at an issuer level. For the sake of ample clarity, if Acuite is rating an issuer afresh, a non-default rating would not be assigned if the curing period post an earlier default on any instrument of similar seniority has not lapsed.
  2. However, for ratings on subordinated or hybrid bonds, since a default on such instruments may not necessarily imply a default by the issuer for senior instruments, curing period should apply at instrument level. In case of default on subordinated or hybrid instruments, ratings on senior instruments may not be upgraded during the curing period for subordinated and hybrid instruments.
  3. If rated instruments is credit enhanced or there is a structure around the cash flows, the curing period will apply at instrument level, as default by issuer on other instruments may not imply or lead to default on such instrument