Withdrawn Ratings
Definition
Withdrawn Ratings denotes the situation where an entity's Credit Rating is no longer available due to a number of reasons.
Indicatively, S&P Global Ratings withdraws ratings when[1]
- when an entity's entire debt is paid off or when the program or programs rated are terminated and the relevant debt extinguished
- a corporate rating may also be withdrawn as a result of mergers and acquisitions
- ratings may also be withdrawn because of a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings
- at the entity's request
Withdrawn ratings amount to a form of right censoring. Namely when a rating is withdrawn, it is known that the entity did not experience a credit event up until a rating withdrawal, but the subsequent history is missing.
Standard Treatment
The method which has emerged as an industry standard treats transitions to NR as non-informative. The probability of transitions to NR is distributed among all states in proportion to their values[2]
Issues and Challenges
A credit rating withdrawal may carry credit related information therefore the treatment of NR (not-rated) entities should be considered as Data Cleansing step that introduces potential a bias in the estimation of a Transition Matrix. The bias can be in both directions (over / under-representing credit risk).
- Removal of ratings for repaid debt may indicate that good credits are preferentially removed from the sample (Competing Risks)
- Removal of ratings due to financial difficulties is obviously correlated with poor credits
When the fraction of NR entities is material extra caution is required for the interpretation of the data
