LONDON - Challengers have come and gone, but no viable alternative has emerged to supplant the so-called Big 3 credit rating agencies when it comes to international debt financing.
A group of smaller credit rating agencies outside the United States now think they have come up with a solution by focusing on midsize companies in Europe and the emerging markets.
On Thursday, five credit rating agencies in Portugal, Brazil, India, Malaysia and South Africa introduced Arc Ratings, a service they think will give up-and-coming companies access to the capital markets outside their home countries.
Executives at the new company acknowledge that they have a long way to go to take business away from the United States-based rating agencies Standard & Poor’s, Fitch Ratings and Moody’s Investors Service.
But they think they will succeed by focusing on the next generation of large companies by offering them access to international capital.
Midsize companies in the emerging markets have been “a segment insufficiently covered and served by the incumbents,†said José Poças Esteves, the chief executive of Arc Ratings.
The entry of a new player comes as regulators and the investing public have raised questions about the independence of the main credit raters. Ratings are typically paid for by the issuers, and some critics have suggested the rating agencies, driven by profit goals, were too closely tied to their clients when making risk assessments before the financial crisis.
Arc Ratings hopes to alleviate those concerns by creating a different style of rating that does not focus on whether a debt offering is investment grade, but on the level of potential risk of default, said Uwe Bott, the company’s chief ratings officer and a former executive at GE Capital.
Critical thinking and qualitative analysis, rather than simply plugging numbers into a model, will be a priority at the company, Mr. Bott said.
“Many executives will tell you, ‘My door is always open,’ but are their minds?†Mr. Bott said.
Ratings for financial stability will range from low risk â€" a traditional AAA rating â€" to imminent or actual default. A second rating will focus on systemic risk, taking into account factors like political uncertainty.
Arc Ratings was formed through the restructuring of Companhia Portuguesa de Rating, a 25-year-old rating agency in Portugal. The company is owned by five rating agency partners: Care Ratings in India, GCR in South Africa, MARC in Malaysia, SR Rating in Brazil and SaeR, a Portuguese agency that was the 100 percent owner of Companhia Portuguesa de Rating.
The partners will continue to run their own ratings businesses in their home markets and will team up to provide ratings for international debt through Arc Ratings. They are hoping to expand their reach by adding partners in China, Japan and Russia in the future.
The five partners represent more than 6,000 clients and hope to tap that client base for Arc Ratings.
Arc Ratings does not plan to issue ratings in the United States.
“Ratings have been around since 1909,†Mr. Bott said. “It’s time for a change.â€
