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Which entities cannot be rated by RapidRatings?

Run Xu
Updated

Companies not currently rated by RapidRatings:

  1. REITs (Real Estate Investment Trusts)
  2. Certain Non-profits
  3. Government organizations
  4. Special purpose acquisition company (SPAC)
  5. New entities with less than 9 months trading

Why can't these companies be rated?

  1. REITs: A REIT’s primary business is managing groups of income-producing properties and then distributing profits as dividends to stock holders. Due to the nature of this business, which is backed by a tangible asset base of real estate portfolios, there is little default precedent for REITs. As such, they do not suit the probability-of-default driven models currently employed by RapidRatings and cannot be rated in our system

  2. Non-profits and government entities: The model we use was calibrated using the operating profiles of for-profit entities and thus should not be used to evaluate non-profit entities. While non-profits and certain government entities do provide the requisite financial information that is needed to run a rating, these statements are not an accurate reflection of the day-to-day operations due to financial conventions that allow non-profits to report in a certain way. Examples include reporting such that income is zeroed out, profits are not reflected, costs are not accurately accounted for and special tax arrangements. Moreover, both these types of entities are sometimes subject to additional external funding, the stabilizing effects of which may not be accurately captured in the financial statements and therefore mitigate risk of default more than our metric would indicate. For certain non-profit companies, we can proceed with a rating given that most of their income is from operating activities and not from grants or donations.

  3. New entities with less than 9 months trading: The FHR is based on trailing 12 months of data. On a case-by-case basis, we are able to extrapolate 9 months of data to produce a score but this is the absolute minimum.

  4. Special purpose acquisition company (SPAC): Also known as a "blank check" company without commercial operations. Such companies are typically formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company.

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