Standard & Poor's Rating Services said it has created a new model, developed in-house, to rate private sector transactions using transfer and convertibility risk (T&C) insurance, in emerging markets.
T&C insurance policies became available to capital market transactions in 1999. Among transactions using T&C insurance that have been completed are Argentina's TGN, which was an unsecured corporate issuance and Brazil-based MSF Funding, which securitized medical equipment leases.
The model came about as a result of the various inquiries S&P has received regarding the possibility of obtaining rating elevations for deals with a T&C insurance policy that only covers the total debt service portion to maturity.
S&P said that with the new model, rating elevation on a partial coverage basis is possible, and the analytical methodology now used by S&P will determine how much T&C coverage is actually needed. While each transaction will be considered on a case by case basis, the model closely considers the extent of sovereign interference, different amounts of insurance and the cash flows of the transaction.
The new model is expected to reduce costs for issuers, provide a greater portfolio of diversification for investors and insurance providers and create a broader market for all participants.