Credit rating agency methodology mapping and diagnostic

A practical guide to CRA methodology application across EMDE transaction structures

This report aims to improve transparency and understanding of how credit rating agencies (CRAs) assess certain transaction types in Emerging Markets and Developing Economies (EMDEs), with the objective of supporting more effective engagement between investors, sponsors, and rating agencies. It maps how existing CRA methodologies are applied across different transaction types and highlights how current approaches reflect risk‑mitigating and credit-enhancing features such as guarantees within blended finance structures.

Below are the key takeaways:

• Blended finance structures, including first-loss capital, subordinated tranches, paid-in capital, political risk insurance and liquidity facilities, can strengthen the risk-return profile of transactions; however, their rating benefit depends on the extent to which they provide clearly demonstrable loss absorption, risk transfer or debt-service support under the applicable CRA methodology.
• Fund-based vehicles, including alternative investment funds and closed-end funds, are typically assessed by CRAs with reference to leverage, asset quality, NAV resilience, liquidity, funding stability, diversification, and the strength of shareholder or investor support.
• Structured finance instruments, including securitisations, CLO/CDO-type vehicles and tranched portfolios, are generally assessed on the basis of portfolio credit quality, default and recovery assumptions, diversification, subordination, overcollateralisation, liquidity support, and cash flow waterfalls.
• Project finance and infrastructure transactions are typically assessed with reference to construction and operating risk, revenue stability, contractual protections, offtaker creditworthiness, debt structure, downside-case cash flows, political and regulatory risk, and currency or convertibility risk.
• MDB/DFI-related and other credit-enhancing features may benefit from shareholder support, preferred creditor status, guarantees, or other forms of credit enhancement; however, the rating impact depends on the strength, enforceability, scope, and timeliness of such support.

This report draws on a methodology mapping exercise undertaken by the EMDE Investor Taskforce across the three major global credit rating agencies: S&P Global Ratings (S&P), Moody’s and Fitch. By clarifying how ratings are determined in practice, this report seeks to demystify the analytical process and provide enhanced transparency with the help of a decision tree on how transactions can be presented to align more effectively with CRA frameworks which may apply layers of multiple assessment methodologies. It identifies key drivers of rating outcomes – such as sovereign risk, diversification, liquidity, and credit enhancement – and explains how these factors are interpreted across methodologies. Ultimately, it emphasises the value of greater transparency, clearer articulation of relevant methodological considerations, and timely engagement with CRAs to support well-informed dialogue about rating analysis and its key drivers. By doing so, it aims to support more consistent risk assessment, better recognition of de-risking features, and increased mobilisation of private capital into EMDEs.

Published by the Emerging Markets and Developing Economies (EMDE) Investor Taskforce with support from CETEx.