Treasury Strategy & Transformation
Published  8 MIN READ
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Managing the Credit Rating Process During a Major Acquisition

by Gurdip Dhami, Treasury Consultant

During the weeks leading up to the public announcement of a major acquisition, the senior managers of a publicly rated company will be focused on transaction related aspects such as valuation and purchase price, financing, due diligence, statutory filings, legal agreements, employee and customer strategy, IT plans, and shareholder and debt holder approvals. In this intense period, the credit rating process may consciously or inadvertently become a secondary priority. This is a risky strategy as it increases the possibility of a negative rating action and is sub-optimal from a workflow perspective. This article sets out an approach for dealing with the rating agencies and the process for evaluating the potential impact on a company’s credit rating. Although the focus is on acquisitions, the main messages also apply to other major events that companies may initiate such as disposals, changes in business or geographical mix, and changes in capital structure. This article applies to companies that have at least one ‘solicited’ public credit rating for which they pay a fee to a rating agency, supply it with information during regular meetings and calls, and have a confidentiality agreement in place.

Communication process

1. Before the public announcement of an acquisition

When a company announces a material acquisition, the company’s rating agency is likely to publish a press release setting out their initial view on the transaction, including the rating action if and when the transaction completes. Therefore the company should contact the rating agency well before any public announcement about the acquisition to get an understanding of the potential rating agency action.