A feature that improves the credit quality of an obligation beyond the obligor's own standalone credit, so that the rating on the obligation sits above the rating the obligor would carry alone.
Ratings that rely on such a feature carry the suffix (CE) — for example AA (CE).
Common forms
- A guarantee from a parent, a group company or a third party.
- A letter of comfort or a shortfall undertaking, where a supporting entity commits to make up a defined gap.
- A debt service reserve account funded in advance to cover a defined number of instalments.
- A structured payment mechanism — an escrow, a trust and retention account, or a defined waterfall directing cash flows to servicing before other uses.
- Pledged collateral held against the obligation.
What the CE suffix is for
The suffix exists so that a reader is not misled about where the credit is coming from. SEBI’s framework requires the CE marker where a rating relies on an explicit enhancement, and requires the agency to also disclose the unsupported rating — the rating the obligation would carry without the feature.
The gap between the two is the single most useful number in a CE release. A AA (CE) sitting on an unsupported BBB is a very different proposition from a AA (CE) sitting on an unsupported AA-, and the symbol on the front page does not distinguish them.
How to read a CE rating
Read the support first: who provides it, whether it is unconditional and irrevocable, what triggers it, and how quickly it pays. Then read the supporting entity’s own rating — a guarantee is only as good as the guarantor. Then read the unsupported rating to see how much work the feature is doing.
Note that a CE rating can fall for reasons entirely unconnected to the obligor: a downgrade of the guarantor, or the expiry or withdrawal of the support, moves it directly.
CE versus SO
(CE) signals external support attached to an obligation. (SO) signals a structured obligation, where the rating addresses a transaction structure and its cash flows. SEBI reorganised the use of the two markers so that enhancement-driven ratings carry CE rather than being grouped under SO.
Related
- Structured obligation — the other suffix, and how the two differ
- Provisional rating — CE ratings are often provisional before documents execute
- Non-convertible debenture — the instrument CE most often attaches to
- Credit rating agencies in India — suffixes and what they change
- Glossary index