21. Rating: New Approach

The Chaps. 21, 22, and 23 suggest a new approach to rating methodology. Chapters 21 and 22 are devoted to rating of nonfinancial issuers, while Chap. 23 is devoted to long-term project rating. The key factors of a new approach 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”) into the modern theory of capital structure (Brusov–Filatova–Orekhova (BFO) theory) (Brusov et al., Modern corporate finance, investment and taxation, Springer International Publishing, Berlin, 2015) (in Chap. 21 into its perpetuity limit). This on the one hand allows use of the powerful tools of this theory in the rating, and on the other hand, it ensures the correct discount rates when discounting financial flows. We discuss also the interplay between rating ratios and leverage level which can be quite important in rating. All these create a new base for rating methodologies. New approach to ratings and rating methodologies allows to issue more correct ratings of issuers and makes the rating methodologies more understandable and transparent.