Template:M intro repack ROPAM ratings

Repayment of principal at maturity
also a “ROPAM rating”
/riːˈpeɪmənt ɒv ˈprɪnsəpᵊl æt məˈʧʊərəti/ (n.)

A means of credit rating structured notes issued by bankruptcy remote espievies which addresses only the likelihood that the issuer will repay the principal of a specific structured note at its stated maturity date.

The rating is predicated on the bankruptcy remoteness of the issuing vehicle and the long-term credit rating of all the financial instruments and counterparties to which the espievie is exposed. No wider analysis of the creditworthiness of the structure takes place.

Rating structured notes is a very limited, narrow type of credit rating of “repayment of principal at maturity” — for ease of articulation, we will call this a “ROPAM rating” — designed specifically for rating structured notes issued by bankruptcy remote special purpose vehicles which, as you may know, we like to call “espievies”.

Overview

ROPAM ratings are designed to meet a specific, limited need. They are a very different proposition to a general long-term credit rating of an ordinary corporate issuer, in which the rating agency has to go full drains up on the corporate, assessing its entire business in every regard, and keeping it under constant supervision throughout the currency of the rating. This is an expensive and invasive thing, and the rating agency takes no small amount of risk in performing the assessment.

By contrast, a structured note rating is a snapshot, issued on and good for the issue date, which targets a single metric: repayment of principal at, and not before, scheduled maturity. It is deduced purely by reference to the legal terms of the note and the existing long-term credit ratings assigned to the assets and claims underlying it. A ROPAM rating not, without specific request from the arranger, reviewed or revisited thereafter, whatever should happen to the long-term credit rating of the underlying assets and claims. It is a limited statement:

As of the issue date, the likelihood that principal on this instrument will be repaid in full on the scheduled maturity date is X.

Purpose

Structured note ratings are primarily obtained for the benefit of the original investors, who typically buy these investments to hold them. If they want to terminate an investment they will usually unwind against the arranger rather than selling the structured note in the secondary market.

A ROPAM rating is designed to satisfy ratings-based eligibility criteria for those initial investors: if their investment guidelines restrict them to, say, investment-grade debt, then they could not otherwise access any structured products issued by a bankruptcy remote investment vehicle, however good the credit quality of the underlying assets.