S&P Global Ratings' corpengine (Corporate Methodology Model Engine) is used to help determine issuer credit ratings (ICRs) to corporate issuers globally.

Redesigned Implementation Of Existing Prior Model

The corpengine model is a new, R-based implementation of the Excel-based Corporate Criteria Scoring Template (CCST) model, which it replaces. As a scoring engine, the corpengine can be interacted with in multiple ways, such as with a user interface known as the CCSTr (Corporate Criteria Scoring Template in R). The new R-based implementation offers several enhancements from the Excel-based version:

• The user interface (CCSTr) is separate from the model, offering additional applicable development flexibility.
• Multiple user interfaces can be designed to invoke the model. In Excel, the interface is integrated into the model which means only one interface can be used.
• Performance enhancements with calculation times up to 30x faster.

Purpose Of The Model

The published criteria articles listed in the "Related Criteria" section below describe the methodology used to determine stand-alone credit profiles (SACPs) and ICRs for existing and new industrial corporate and utilities issuers.

The corpengine implements criteria-based assessments we make for corporate and utilities issuers such that when populated it will calculate indicative SACPs and ICRs.

The user determines the assessments for the individual components in the corpengine by applying our criteria titled "Corporate Methodology," published Jan. 07, 2024. These assessments are further supplemented by other criteria, including the "Sector-Specific Corporate Methodology", published April 04, 2024 (see the "Related Criteria" section below).

Analytical assessments derived using "Corporate Methodology," sector-specific criteria, and other supplementary criteria (such as "Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers," published Dec. 16, 2014, and "Methodology: Management And Governance Credit Factors For Corporate Entities," published Jan. 07, 2024) are inputted into the corpengine. The corpengine, in turn, evaluates these individual assessments against the various matrices and tables outlined in the criteria. A completed set of inputs into the corpengine will calculate an indicative SACP and ICR, which the user can use to form a rating recommendation that is presented to a credit committee.

Summary Description Of The Model

The corpengine is implemented in a modular fashion, whereby specific factors of the "Corporate Methodology" are implemented as individual functions. These functions are then called collectively by an overarching (engine) function to produce an indicative SACP and ICR whenever the model is called by the user. The model outputs range from 'AAA' to 'D'. The individual functions can be categorized into six groups: business risk profile (BRP), financial risk profile (FRP), modifiers, group rating methodology (GRM), government-related entities (GRE), and ratings above the sovereign (RAS).

Functions related to the BRP include the country risk and industry risk, which combine to produce the corporate industry and country risk assessment (CICRA). The combination of the CICRA and competitive position assessment produces the business risk profile assessment.

Functions related to the FRP assessment capture cash flow/leverage analysis, whereby a time series of standard core and supplemental ratios are weighted by time, considered against an applicable benchmark table and compared. Any cash flow volatility is also considered.

Functions relating to modifiers include adjusting the anchor assessment, which is produced by combining the BRP and FRP. These modifiers are the diversification/portfolio effect, capital structure, financial policy, liquidity, management and governance, captive finance, and comparable ratings analysis. The adjustments are applied by the model according to the criteria logic and using information input on each modifying factor. This result is the SACP, unless the user determines that the criteria for assigning 'CCC+', 'CCC', 'CCC-', and 'CC' ratings are applicable to the issuer, in which case these criteria then supplement the "Corporate Methodology" criteria within the corpengine.

Functions relating to the last three groups—GRM, GRE, and RAS—can lift or cap the SACP to arrive at the indicative ICR. For example, the ICR on the subsidiary of a group can benefit from the higher credit quality of its parent, or it can be capped by a weaker parent's credit quality. Similarly, the ICR on a domestically strong corporate issuer may be constrained (capped) by the weaker sovereign rating of its domicile country. The applicability of these considerations varies significantly: Nearly all corporate issuers are considered part of a group, but most corporate issuers are not government-related, and most corporate issuers have indicative ratings below their sovereign rating and therefore do not require us to stress-test their ability to have a ICR above that of the sovereign. In addition, the application of these modules does not always modify the SACP to arrive at the ICR. For example, the parent company of a group typically has the same credit quality as the group. Similarly, a company with low extraordinary likelihood of support from a higher-rated government will, in most cases, have no impact on its ICR from the consideration of the GRE criteria.

Assumptions Underlying The Model

The model assumptions are derived from the criteria listed below in the "Related Criteria" section. Increments for industry risk breakdowns are assumed to follow the same rounding to 5% as is the case for country risk breakdowns, as set out in paragraph 43 of the "Corporate Methodology".

Inputs To The Model

Inputs into the corpengine reflects our assessments of how the issuer fares based on the key factors in our criteria. High-level assessments for each module of the corpengine are summarized in the table below.

Further granularity exists for several of the above inputs, to reflect the sub-assessments defined in the corporate criteria.

For example, the corpengine captures the competitive position assessment by recording and combining sub-assessments for competitive advantage, scale/scope/diversification, operating efficiency, and profitability. Profitability is itself determined by assessing absolute profitability and the volatility of profitability.

Similarly, the corpengine makes use of historical and forecasted ratios determined by the user using a forecast model (ESP). A weighted average of each ratio (categorized as core or supplementary) is compared against a benchmark table to return a sub-assessment. These assessments are collectively reviewed by the user to determine the final cash flow/leverage assessment.

The corpengine also determines or, in some cases, helps the user determine various intermediate assessments, such as the initial rating outcome or "anchor" (the combination of business risk and financial risk before any impact from modifiers, GRM, GRE, or RAS) and incorporates the criteria logic regarding how the various sub-assessments are combined, sequenced, and prioritized to form intermediate assessments until an ICR is determined. These sub-assessments have not been described as modules or inputs in this article.

Certain assessments are company-specific and determined with the help of the corpengine during the scoring process, while others are inputs—which are not specifically linked to a company and can be revised anytime outside of the issuer review process. For example, the country risk and industry risk assessments contain sub-assessments, which may change as part of a wider country- or industry-specific review.

Data Used In Model Development And Calibration

A randomized selection of issuer data was used during the model development phase to determine if the model generated an appropriate relative ranking of credit risk. This data set was selected across geographies, portfolios, industries, and rating categories.

The calibration process was carried out independently at the criteria level. At the time of the implementation of the updated "Corporate Methodology," only 5% of ratings changed.

The Limits And Uncertainties Of The Model

The corpengine should be used for corporate entities, except investment holding companies and pure commodities trading companies.

Sometimes the corpengine is not able to capture all possible scenarios outlined in the criteria given the complexity that arises when several criteria pieces are applied together. In these cases, a manual override can be used to select an indicative SACP or ICR that is in line with the criteria.

Related Criteria And Research

Related Criteria

• Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1,2012
• Methodology: Industry Risk, Nov. 19, 2013
• Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 19, 2013
• Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
• General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
• Industrials: Key Credit Factors For The Operating Leasing Industry, Dec. 14, 2016
• Industrials: Commodities Trading Industry (section VII only) Methodology, Jan. 19, 2017
• Industrials: Key Credit Factors For The Real Estate Industry, Feb. 26, 2018
• Corporate Methodology: Ratios And Adjustments, April 1, 2019
• General Criteria: Group Rating Methodology, July 1, 2019
• Methodology: The Impact Of Captive Finance Operations On Nonfinancial Corporate Issuers, Oct. 23, 2023
• Methodology: Management And Governance Credit Factors For Corporate Entities, Jan. 07, 2024
• General: Corporate Methodology, Jan. 07, 2024
• Sector-Specific Corporate Methodology, Apr. 04, 2024