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Development of a Basel II conforming rating model
01 November 2005
A critique of bank and rating agencies approaches to assessing credit risk in project finance and the methodology for a new rating model - what is different about the proposed model and why it is better then existing ones. By Jeorg Orgeldinger,Dipl.-Kfm. (univ.), MBA (UK).
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The banking world has recently seen a turbulent development of rating models. In the beginning, the development was focused more thoroughly on corporate clients, but given that these rather standard rating tools are now outdated, there is a tendency towards rating increasingly complex debt instruments and transactions.
This article deals with the development of rating models for project risk. Project Finance covers a wide range of transactions. The term is generally used to refer to a non-recourse or limited recourse financing structure in which debt, equity and credit enhancements are combined for the construction and operation, or the refinancing, of a particular facility in a capital intensive industry (e.g. infrastructure, public services etc.). A rating grade provides comprehensive information on the solvency of a counterpart to investors, depositors, holders of bonds or shares.
In the first part of this article specialized lending and, specifically, project finance will...
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