Criteria For Default Recognition

Acuité adheres to the following definition of default:

Fund-based facilities & Facilities with pre-defined repayment schedule

Facilities

Rating Scale

Proposed Definition of Default

Term Loan

Long Term

A delay of 1 day even of 1 rupee (of principal or interest)   from the scheduled repayment date.

Working Capital Term Loan

Working Capital Demand Loan (WCDL)

Debentures/Bonds

Certificate of Deposits (CD)/ Fixed Deposits (FD)

Short Term/
Long term

Commercial Paper

Short term

Packing Credit (pre-shipment credit)

Short Term

Overdue/unpaid for more than 30 days.

Buyer's Credit

Short Term

Continuously overdrawn for more than 30 days.

Bill Purchase/Bill discounting/Foreign bill discounting /Negotiation (BP/BD/FBP/FBDN)

Short Term

Overdue/unpaid for more than 30 days.

Fund-based facilities & No Pre-Defined Repayment Schedule

 

Facilities

Rating Scale

Proposed Definition of Default

Cash Credit

Long Term

Continuously overdrawn for more than 30 days.

Overdraft

Short Term

Continuously overdrawn for more than 30 days.

Non fund-based facilities

 

Facilities

Rating Scale

Proposed Definition of Default

Letter of credit (LC)

Short Term

 Overdue for more than 30 days from the day of devolvement.

Bank Guarantee (BG)(Performance/ Financial)

Short Term

Amount remaining unpaid from 30 days from invocation of the facility.

 

Other Scenario

Scenario

Proposed Definition of Default

When rated instrument is rescheduled:

 

Non-servicing of the debt (principal as well as interest) as per the existing repayment terms in anticipation of a favorable response from the banks of accepting their restructuring application/ proposal should be considered as a default.

Rescheduling of the debt instrument by the lenders prior to the due date of payment will not be treated as default, unless the same is done to avoid default or bankruptcy.

Events of Default in case of Hybrid Instruments

Acuité believes that any delay in servicing the interest from the scheduled repayment date shall constitute an event of default. Acuité will recognize a default when the issuer of the instrument delays, even by one day, any interest payment (and/or principal in case of non-perpetual instruments) even if the terms of the instrument allow such delays in certain situations.

Curing Period

The following curing period shall be applicable for entities rated 'D' i.e. 'Default' category

  • 90 Days - from 'Default' up to 'BB+'
  • 365 Days - from 'Default' to 'BBB-' and above

Checklist for the Rating Note

The Rating Analyst should ensure that the points mentioned in the checklist below are applicable to all the outstanding instruments. The table below should form part of every rating note.

Details of the checklist Yes / No

Has the issuer indicated that they have delayed or defaulted^ in debt service on any external debt (i.e. excluding debt from the promoters)?

 

Has the company's auditor (typically in the annual report) indicated any delays/ defaults in debt service by the borrower?

 

As part of the interactions with the borrower's bankers, have any of the bankers indicated any irregularity/ delays/ defaults in debt service by the borrower?

For capital market instruments, have the debenture trustees indicated any delays/ defaults in servicing of the debt instruments by the issuer?