The Securities and Exchange Board of India Vide its Notification dated 21st May 2020 has the revised the existing policy on post-default curing period with a view to provide some flexibility to CRAs.
SEBI has noted in a few recent cases of defaults that even though the rated entity was able to correct the default within a relatively shorter span of time, the rating could not be upgraded and continued to be under sub-investment grade due to the extant provisions on post-default curing period of 90 days for the rating to move from default to speculative grade and generally 365 days from default to investment grade. There is a possibility that such cases may increase in the wake of the COVID-19 pandemic.
Therefore SEBI has revised the policy after taking into consideration the representation received from various stakeholders and analysis of the same. The revised policy states that – “After a default is cured and the payments regularized, a CRA shall generally upgrade the rating from default to non-investment grade after a period of 90 days based on the satisfactory performance by the company during this period. CRAs may deviate from the said period of 90 days on a case-to-case basis, subject to the CRAs framing a detailed policy in this regard”.
Further CRA has framed a policy in respect of upgrade of default rating to investment grade rating and place it on its website.
The policies framed may include scenarios like technical defaults, change in management, acquisition by another firm, a sizeable inflow of long-term funds, or benefits arising out of regulatory action, among others, which fundamentally alter the credit risk profile of the defaulting firm.
Click here to read the Notification.
