Principles and Characters of R&I Ratings

1. 30 Years of Experience and a Massive Market Share

Rating and Investment Information, Inc. (R&I), was established in April 1998 through the merger of Nippon Investors Service (NIS) and The Japan Bond Research Institute (JBRI), and is the largest rating agency in Japan.

R&I's roots lie in a bond rating committee established within Nihon Keizai Shimbun, Inc. ("Nikkei") in 1975.
Ratings of corporate bonds, samurai bonds and other instruments have played a crucial role in the Japanese market for more than 30 years since then.

R&I's bond ratings cover almost every element of the Japanese bond market, and the insight this provides has earned the strongest confidence in R&I ratings among market players.

Ratings have become a key element in corporate financial strategies, and achieving and maintaining a high rating, or earning a higher rating, have become major targets of corporate management. Getting an R&I rating has become one of the key ways for a company to win the trust of the market.

2. An Impartial and Fair Rating System

Investors consider a bond rating to be an essential precondition for a company that is issuing bonds, CP and other instruments. Investors need to know what risks an investment object entails, what the issuer's corporate and operational strategies are, and how to evaluate new operations; ratings are a key reference point for investors in making these judgments of credit risk, and are becoming essential tools in investment decision-making. They could be described as constituting part of the infrastructure of the capital markets. This makes it all the more important that ratings be objective and fair.

Regarding this point, R&I can boast a strong degree of independence from both issuing companies and financial institutions thanks to the fact that the majority of its paid-in stock is held by "Nikkei" and other Nikkei Group companies.
Further, R&I's articles of incorporation state that the Rating Committee's purpose is to ensure that ratings be impartial and fair. This constitutes a guarantee that rating decisions are independent of any conflict of interest within the company.

3. Detailed Surveys and Analysis

In evaluating a rating, R&I analysts not only consider quantitative factors such as financial data, but also pay close attention to the structure of the sector to which the issuer belongs and its management strategies, sales techniques, technological abilities, and other qualitative factors.

The analysts responsible analyze the various data and reports they have compiled, and at the same time visit the issuing company and its factories to conduct an on-site survey. They also conduct hearings with representatives from the financial and planning divisions as well as key operational divisions and the R&D set-up. Another important factor in the analysis is the interview with top management. This is because an evaluation of management skills is considered essential at a time of rapid structural change.

After analyzing the variety of factors that can have an impact on a firm's management, the analysts also estimate the kind of structural changes to the company's earnings and finances that are likely to emerge over a medium-term perspective. R&I's approach is to consider the company's overall debt repayment ability from the viewpoint of the company as a going concern, and investigates the probable future level and stability of cash flow and its scale as compared to the level of debt.

R&I also conducts detailed follow-up analyses of the issuer's creditworthiness subsequent to the initial rating assessment, and carefully revises the ratings in light of any changes.

4. Highly Experienced Analysts

The complex and insightful analysis carried out by the analysts requires a wide range of expertise, in economics and industry, accounting, and financial and bankruptcy law. They must be skilled in collecting data (the ability to assemble sufficient, high-quality data in an effective manner), analysis (the ability to analyze the assembled data and extract from it the elements relevant to the rating assessment), judgment (the ability to make an overall judgment of the results of the analysis), and diplomacy and power of expression (the ability to satisfy the issuer as to the appropriateness of the rating, and to explain the rating rationale to investors in an understandable way). R&I's analysts consist of individuals that excel in these areas.

5. Growing Range of Rating Objects

R&I has been a pioneer of rating Japanese municipal bonds, "zaito" (Fiscal Investment and Loan Program) institutions' bonds and Issuer Rating for incorporated schools and medical institutions. R&I is unquestionably the market leader in these fields.

Ratings are R&I's opinion regarding an issuer's overall capacity to repay its entire financial obligation as well as issuer's certainty (credit quality) to repay its financial obligations, and as such almost all the bonds issued by companies and other issuers carry bond ratings. Further, ratings are assigned to instruments other than standard bonds and commercial paper programmes, for example preferred securities, subordinated notes, asset-backed securities, insurance claims paying ability, and syndicated loans, etc.

Ratings cover a wide range of objects in the structured finance field: these include securitization programs for lease receivables, installment sales receivables, consumer finance receivables etc., RMBS and CMBS, J-REIT, PFI and project finance. Ratings are also used in areas such as bank loans.
Credit risk will become an issue of ever greater concern in the future, and R&I will develop ratings for new areas and structures as is required.