Rating Advisory Services

Rating agencies are under increasing pressure from SEC investigations, increased government oversight, and investor law suits. They have responded with multinotch downgrades at a pace never seen before. The rating agencies have imposed rating caps on many structures, in addition to imposing new restrictions on leverage. The impact of these rating actions and criteria changes has been an increase in the cost of financing and the cost of compliance to maintain a rating. These are two factors that can significantly impact the success, or sometimes the survival, of mutual funds, structured products and corporate issuers Historically, the rating agency process was bundled with other services such as a debt offering, restructuring or recapitalization of an older structure. The complicated, long and frustrating process has never offered clarity into the rating opinion. The process requires experienced guidance and strategic insight to obtain the proper result. Investment banks, asset managers, and other participants in the rating process are under investigation due to allegations of manipulation or fraud. There are two components to arriving at a rating opinion: 1. Quantitative modeling can be Actuarially-based Simulation-based 2. Informed judgment (analyst judgment) can include consideration of: Manager reputation Regulatory requirements Risk mitigating factors Accepted market convention The purpose of Rating Advisory Services is to educate and influence the informed judgment to obtain a proper result.

How We Can Help

Navigant Economics Rating Advisory Service combine quantitative analytical skills and industry experience to help issuers develop strategies to obtain the highest possible rating, thus minimizing borrowing cost, and maintaining ratings with the lowest cost of compliance. We use the experience gained from years of criteria development, analysis, and client relations at the rating agencies to help our clients produce documents and rating presentations that advance their needs while directly addressing the concerns of the rating agencies. We have professionals with direct experience in the rating process and have intimate knowledge about how the agency process operates. We advise clients on the best way to prepare for a new rating and periodic rating reviews. We focus on influencing the informed judgment driving the rating decision by developing alternative views grounded in market convention. Our understanding of critical rating issues and the rating implication of business options help our clients avoid rating agency pitfalls and increase speed to market. Clients have found our experience to be invaluable in helping them prepare for, and respond to, regulatory inquiries and investigations.

Solutions for:
New debt issuance Amendment and restructuring Rating optimization Regulatory investigation and litigation

Contact Jean-Baptiste Carelus 646.227.4215 jcarelus@naviganteconomics.com Steven Hilfer 646.227.4772 steven.hilfer@naviganteconomics.com Vikram Kapoor 646.227.4259 vikram.kapoor@naviganteconomics.com

Why Navigant?
A record of successful engagements Transparency of transaction fees Minimized conflicts of interest We work to get the best rating possible given the structure Ability to work across products Rating Agency and Investment Banking experience

Representative Engagements
A multi-billion dollar asset manager downgraded due to downgrade of monoline insurer. In 2008 the monoline insurers were downgraded and placed on credit watch with negative implications. Rating action was taken on the managers funds based on the guarantees provided by the monoline. The downgrade would have resulted in the dividend rate increasing 100 basis points. The manager engaged Navigant Economics to appeal the rating action. Our analysis of the underlying rating, guarantee agreement, and other legal documents showed that the rating cascade was erroneously applied and the rating action was reversed. A fund manager faced with rating agency proposed rating limit of AA on market value transactions. The downgrade would have resulted in the interest rate on their liabilities increasing by about 200 basis points. The manager engaged Navigant Economics to develop a proposal exempting the funds from the new criteria

We successfully challenged the application of the new criteria to the funds. The rating agency moved forward with its proposal and downgraded many transactions. The funds were not downgraded. An investment bank faced with an SEC inquiry into possible manipulation of the rating process. The bank engaged Navigant Economics to help prepare a response to the inquiry. We helped the client develop a presentation outlining the roles of each participant in a structured transaction. This presentation included outlining the rating agency internal rating process put in place to help minimize the influence of a single participant in manipulating the rating for their benefit.

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2011 Navigant Consulting, Inc. All rights reserved. 09-01009A Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses.