Last week the Minister of Finance showcased the results of a recent credit rating review of our Government’s outstanding bonds and debt, the state of Bermuda’s economy and her credit worthiness.
The results appeared to be very positive, which, for all intents and purposes, is a very good thing. But the question floating around Bermuda’s financial community is, who is Kroll Bond Rating Agency (KBRA)? Where did it come from?
An industry search of the KBRA indicates it is not in the top five global credit rating agencies – it’s a relative unknown.
It’s common knowledge that Bermuda has used Standard and Poors, Moody’s, and Fitch for most of the past 20 years. Their credentials are impeccable, and their services have stood the test of time.
Standard & Poor’s is the oldest. It traces its history back to 1860 when financial analyst Henry Poor wrote a history of the finances of railroads and canals in the US, as a guide for investors.
Moody’s was started in 1909 by John Moody, who published an analysis of the tangled and uncertain world of railway finances, grading the value of its stocks and bonds.
John Fitch set up his company in 1913.
There are hosts of other ratings agencies, but S&P, Moody’s and Fitch have about 95% of the global market with S&P and Moody’s having about 40% each, while Fitch has around 15%.
The US Securities and Exchange Commission acknowledged the three as “Nationally Recognized Statistical Organizations” and so from a rating agency perspective, they are considered the gold standard.
From the research that I have gathered, KBRA entered the international credit rating arena in 2010, after the last economic crisis, and is still finding its way as a relatively newly minted agency, as compared to S&P, Moody’s and Fitch.
Bermuda is a top tier business jurisdiction, itself the gold standard for the delivery of offshore financial services. So why are we deviating from our long relationship with the gold standard of international credit rating agencies; agencies that are intimately familiar with Bermuda’s unique economic model.
It is a well-known fact that, for the most part, the top tier rating agencies’ analysis and rating is retrospective, i.e. relying on factual data, financial governance, credit administration and established trends.
Comments regarding the future are based on those facts and trends. The Minister of Finance’s recent credit rating statement spoke to KBRA’s favourable forward-looking assessment of Bermuda’s emerging and developing industries, in particular, our emerging fintech and digital commerce industries. It is hardly likely that there is sufficient historical data available for such an assessment to be realistic, or up to S&P’s and Moody’s standards.
It costs the Government a lot of money to obtain an international credit rating – but such is the price of credibility. S&P and Moody’s already provide that for us. What made KBRA so attractive to the PLP Government that it would spend even more money for its rating and how much more credibility did it buy?
There is more to this credit assessment than meets the eye.
Could it be that KBRA was the only credit rating agency who was willing to help the Government showcase its fintech and digital commerce industries?
Stay tuned. There is more to this appointment and we await the details.