Better Rating Agency Relations Are Just a Few Steps Away.

• Author: Sweeney, Liz

Much is at stake for public finance debt issuers that request credit ratings from Wall Street's big credit rating agencies, which include S&P Global Ratings, Moody's, Fitch Ratings, and Kroll Bond Rating Agency. Historically, many public finance issuers avoided credit rating agencies entirely by purchasing bond insurance, a strategy that fell off substantially after the insurers were downgraded during the financial crisis more than a decade ago. Although bond insurance has lately been making a comeback, it still represents a much smaller share of tax-exempt debt issuance than it did before the financial crisis. Similarly, direct placements with banks soared after the financial crisis, when low interest rates and lack of other lending opportunities made it attractive for banks to lend directly to municipalities. But the lower corporate tax rates established in the Tax Cuts and Jobs Act of 2017 have made tax-exempt debt less attractive to banks.

All this means that public finance issuers are finding themselves face to-face with credit rating agencies more often, and it can be a stressful and intimidating experience. Here's the good news: Whether you are a new debt issuer dealing with credit rating agencies for the first time or you have long-standing established relationships with them, there are a few simple ways to maximize your rating agency relations, reduce the anxiety of the rating process, and maybe even get that long-wanted upgrade. Following are 10 suggestions.

10 | It's not all about you.

Ratings can feel like an intensely personal reflection on your organization and its leadership. The strength of management is an explicit factor in nearly every credit rating agency methodology. But there are many rating factors that management has little to no influence over. For example, hospitals face a host of industry risks that they can't control directly, including legislative and policy risks, regulatory changes, reimbursement risk, and developments in clinical care, science, and medical technology. Similarly, local governments have limited influence over their tax base, socioeconomic factors, and the statutory framework that governs which taxes and fees they can assess--and at what levels.

9 | Keep in mind the bigger context.

Crating rating agencies assess creditworthiness in many asset classes and geographies. When they assess your credit risk, they also have an eye on how the risks faced by your organization and your sector compare to many other sectors across the globe. This is called "rating comparability." It's the idea that an...