Solutions

Case Studies of Financial Advice Provided to Clients by SCIC

Credit Risk Management: Client Wishes To Revise Its Internal Rating System
Client Risk Management Group of a financial institution.
Problem Client had an internal rating system but it was not sufficiently granular to accommodate an expanded volume of loans and guarantees for a wider creditor universe. It needed the system to be Basle II compliant and wanted to follow international best practice by assessing both borrower and transaction risks.
Analysis SCIC studied internal rating systems of similar institutions in order to gain a market perspective.
Solution SCIC developed a credit risk classification system with finer granularity incorporating both the borrower and the transaction dimensions, and building in the capacity for the client to map its ratings in due course to those of the international credit rating agencies.
Benefits The Client now has a common internal language and process for credit risk assessment and monitoring which facilitates more focussed discussion on credit risks among deal origination, risk management, and risk monitoring staff.
Capital Markets: A Client With A New Ownership Structure for a Rating Without Government Guarantees
Client A specialized European lender.
Problem Client, formerly guaranteed by the triple-A rated sovereign, was facing the prospect of a reduction in the government's shareholding and a loss of the government’s guarantee.
Analysis SCIC believed that the Client's creditworthiness was strong and could be demonstrated with written and oral presentations emphasizing its strong balance sheet, strong relationship with the government, and tight central government controls on borrowers which protect the bank’s asset quality.
Solution SCIC prepared a comparative credit analysis showing the credit strengths of the Client in relation to its peer group, coached the Client for meetings with the ratings agencies, advised on follow-up questions from the rating agencies and thus helped obtain the top ratings.
Benefits The Client obtained triple-A ratings from both Moody's Investors Service and Standard & Poor's and launched a multi billion dollar borrowing program in the international capital markets.
Structured Finance: Expert Witnessing on the Impact of Securitization Of Stranded Costs On Utility Ratepayers
Client Public Utility Commission Office of the Consumer Advocate.
Problem Securitization of stranded costs was a key component of the strategy to deregulate electric markets. The relationship between the State and its dominant electric utility has historically been contentious. Given the fact that this state had the highest average electric rates in the US, the Office of the Consumer Advocate greeted the deregulation proposal with some degree of skepticism.
Solution An SCIC team member was retained to advise the Office of the Consumer Advocate regarding the impact of securitization. Written and oral testimony was provided to both the Public Utilities Commission and the State Legislature. Upon completion of the testimony, the engagement was expanded, at the request of the Attorney General’s office, to review proposed legislation to facilitate securitization.
Benefits With acceptance of securitization as a financing tool to reduce electric rates, the distrust between the utility and the State was reduced. Moreover, a review of the proposed legislation uncovered language related to the securitization that could have placed the state’s general obligation rating of AA+ at risk. As recommended, the language was modified and the securitization proceeded.
Structured Finance: Developing Financial Guarantee Products For Emerging Markets
Client International financial institution.
Problem The Client wanted to develop financial guarantee products to deploy its triple-A ratings to support asset backed and infrastructure revenue backed financings for private sector clients to promote domestic capital market development.
Analysis Client has provided political risk guarantees and wishes to provide financial guarantee products that add value either alone or in conjunction with public private partnerships.
Solution SCIC designed a menu of credit guarantee products for the Client to offer. The menu was approved by the Board and is now being offered to the market. SCIC also helped the Client work with private financial guarantee industry with co-insurance structures.
Benefits Client guarantee provides higher ratings and facilitates collaboration with international financial guarantors and local market sponsors, facilitating capital market access for private sector entities.
Breadth of Experience
Region Focus of Project Benefits Provided
Credit Risk Management

Africa

Assessment of preparedness of a financial institution to obtain a formal credit rating A formal credit rating was obtained

 

Advising a non-bank financial institution on rating agency presentations, both written and oral to help improve its ratings Led to an improved assessment of risk management capabilities of the client by the rating agency, resulting in an improvement in its rating from BBB+ to A-

 

Assessing if a project financing facility is of higher credit quality than the country in which the project is located Determination of higher credit assessment for the project financing facility was accepted and the project can move forward

Eastern Europe

Advising on rating agency presentations, both written and oral, to improve dialog with credit rating agencies One credit rating agency upgraded the institution to investment grade

Western Europe

First time international credit rating for a universal bank Investment grade rating obtained

 

Advising an export credit agency on strategy to maintain current ratings notwithstanding a possible change in government support Led to revisions in key financial policies and procedures

 

Increasing headroom for expansion of lending activities while maintaining ratings Proposing a unique method of leveraging existing capital to increase headroom, and enabling ratings to be maintained

Western Hemisphere

Evaluating credit risks of a number of banks wishing to participate in a Tier II capital facility The banks studied were approved for participation, some with conditions reflecting individual risk factors

 

Developing Basel II compliant internal rating system to accommodate an expanded range of loans and guarantees System has been implemented and training has been provided using a dozen test cases of ratings for the Client’s transactions
Capital Markets

Africa

Evaluation feasibility of a venture capital fund targeting small and medium enterprises (SMEs) A venture capital fund is being created largely as contemplated

 

Evaluating of asset manager performance in managing external reserves for a central bank Identifying specific performance shortfalls and recommending changes in investment guidelines and performance benchmark

Asia

Assessing the experience of private capital markets in financing infrastructure projects in East Asia and the Pacific over the decade since the 1997 Asian financial crisis Providing lessons learned and contributing to a major assessment of infrastructure finance for an international financial institution

 

Developing a business plan for the establishment of a secondary mortgage facility in a South East Asian country Helping develop consensus for needed legal and regulatory changes to promote the secondary mortgage facility

 

Advising the government and the secondary mortgage agency of a South East Asian country on securitization framework in the country Recommending reforms in the legal and regulatory infrastructure for securitization and advising on the first mortgage backed security (MBS)

 

Finding an equity investor for a start-up non-bank financial institution in South Asia An investor was identified who did invest, enabling the new venture to commence operations

 

Advising a municipal infrastructure fund in a South East Asian country on capital market financings Developed credit analysis, issuing strategies and solutions to legal and regulatory impediments for infrastructure revenue bonds

Western Hemisphere

Developing a menu of partial credit guarantee products and risk sharing methodologies for use in private sector structured and corporate finance activities Proposed a menu of guarantee products and a co-guarantee structure for a toll road financing and both recommendations were implemented
Structured Finance

Africa

Evaluation of a universal bank’s internal rating system for corporate loans Internal ratings system was mapped to that of the rating agencies, enabling an investor to take a mezzanine layer of risk in a synthetic collateralized loan obligation

Western Hemisphere

Development of underwriting guidelines for residential mortgage related credits The guidelines have been used in transactions
  Evaluation of underwriting and servicing capabilities for loans to developers for construction of affordable housing The loan originator was approved as generally consistent with international standards
  Evaluation of capabilities to originate, underwrite and service consumer loans for securitization Institution was determined generally to meet international best practices
US Developing a structure for a first time securitization of insurance premium receivables originated by a US bank Transaction accepted by an ABCP Conduit
  Development of structures to securitize interest only strips of US Government Guaranteed Loans made to small and medium enterprises (SMEs) SCIC structures were employed in two subsequent securitizations
  Financial Intermediaries facing litigation regarding structured financings Expert testimony on adequacy of disclosure, credit issues and overall consistency with market practice
 
Mission Statement

Private sector and government-owned financial institutions and corporations currently face enormous challenges in gaining access to global capital markets...read more