Corporate Credit Report of IBERDROLA

Details

Supervisors

Leonardo Iania

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

A corporate credit rating expresses an agency’s opinion regarding the ability and willingness of an issuer to meet its financial obligations in full and on time; the higher the grade, the more likely it is for a company to meet its obligations. According to the Bank of International Settlements there are about 130-150 agencies around the world, many of which are small and focus on particular sectors or geographies. The three best-known credit rating agencies (Standard and Poor’s, Moody’s and Fitch Ratings) cover nearly 90% of the market. Since credit ratings are dependent on future events which cannot be accurately foreseen, the assignment is not an exact science. It expresses a relative opinion of an agency regarding the creditworthiness of a given entity within a universe of credit risk. Credit ratings should not be looked at as an indication of investment merit as they speak only to one aspect of an investment decision – credit quality. Nevertheless, investors are known to use these ratings as a proxy for future performance which has had repercussions in financial markets. In fact, credit rating agencies have been accused of being the major cause of some financial crisis due to incorrect assessments: 1) In 2001, Enron received the highest credit rating just before collapse which contributed to the Asian financial crisis; 2) in 2008, the erroneous assessment of credit debt obligations contributing to the sub-prime financial crisis; and 3) in 2011, the erroneous assessment of European countries ratings contributed to the European sovereign debt crisis. In this context, this work project consists of a credit rating report for IBERDROLA., the largest utilities company in Spain. It is structured in two main parts, II) Methodology and III) Credit Report. The second chapter (Methodology), presents the methodology followed to attribute the credit rating (which has been adapted from Morningstar) and the third chapter (Credit Report) consists of a report structured as those developed by the credit rating agencies.