23. Ratings of Long-Term Projects: A New Approach

The chapter continues to create a new approach to rating methodology: in addition to two previous chapters, which have considered the creditworthiness of the non-finance issuers (Brusov et al., J Rev Global Econ 7:63–87, 2018c; J Rev Global Econ 7:37–62, 2018d), we develop here a new approach to project rating. We work within investment models created by the authors. One of them describes the effectiveness of investment project from the perspective of equity capital owners, while the other model describes the effectiveness of investment project from the perspective of equity capital and debt capital owners. The important features of current consideration as well as in previous studies are (1) the adequate use of discounting financial flows virtually not used in existing rating methodologies and (2) the incorporation of rating parameters (financial “ratios”), used in project rating, into considered modern investment models. Analyzing within these investment models with incorporated rating parameters the dependence of NPV on rating parameters (financial “ratios”) at different values of equity cost k ₀, at different values of credit rates k _d, as well as at different values of leverage level L, we come to a very important conclusion that NPV in units of NOI (\( \frac{\mathrm{NPV}}{\mathrm{NOI}} \)) [as well as NPV in units of D (\( \frac{\mathrm{NPV}}{D} \))] depends only on equity cost k ₀, on credit rates k _d, on leverage level L, as well as on one of the leverage ratios l _j (on one of the coverage ratios i _j) and does not depend on equity value S, debt value D, and NOI. This means that obtained results on the dependence of NPV (in units of NOI) (\( \frac{\mathrm{NPV}}{\mathrm{NOI}} \)) on leverage ratios l _j [as well as on the dependence of NPV (in units of D) (\( \frac{\mathrm{NPV}}{D} \)) on coverage ratios i _j] at different equity costs k ₀, at different credit rates k _d, and at different leverage levels L carry the universal character: these dependencies remain valid for investment projects with any equity value S, debt value D, and NOI.