Start here Ratings sheet
Inputs for synthetic rating estimation
Please read the special cases worksheet (see below) before you use this spreadsheet.
Before you use this spreadsheet, make sure that the iteration box (under calculation options in excel) is checked.
Enter the type of firm = 2 (Enter 1 if large manufacturing firm, 2 if smaller or riskier firm, 3 if financial service firm)
Do you have any operating lease or rental commitments? Yes
Enter current Earnings before interest and taxes (EBIT) = 50 (Add back only long term interest expense fo
Enter current interest expenses = 8 (Use only long term interest expense for fina
Enter current long term government bond rate = 5.10%
Output
Interest coverage ratio = 3.07
Estimated Bond Rating = BB Note: If you get REF! All over the place, set the operati
Estimated Default Spread = 3.35% to No, and then reset it to Yes. It should work.
Estimated Cost of Debt = 8.45%
If you want to update the spreads listed below, please visit http://www.bondsonline.com
For large manufacturing firms For financial service firms (default spreads are slighty di
If interest coverage ratio is If long term interest coverage ratio is
> ≤ to Rating is Spread is greater than ≤ to
-100000 0.199999 D 15.00% -100000 0.049999
0.2 0.649999 C 12.00% 0.05 0.099999
0.65 0.799999 CC 10.00% 0.1 0.199999
0.8 1.249999 CCC 8.00% 0.2 0.299999
1.25 1.499999 B- 5.25% 0.3 0.399999
1.5 1.749999 B 5.00% 0.4 0.499999
1.75 1.999999 B+ 3.75% 0.5 0.599999
2 2.2499999 BB 3.35% 0.6 0.749999
2.25 2.49999 BB+ 3.00% 0.75 0.899999
2.5 2.999999 BBB 1.60% 0.9 1.199999
3 4.249999 A- 1.10% 1.2 1.49999
4.25 5.499999 A 1.00% 1.5 1.99999
5.5 6.499999 A+ 0.85% 2 2.49999
6.5 8.499999 AA 0.65% 2.5 2.99999
8.50 100000 AAA 0.50% 3 100000
For smaller and riskier firms
If interest coverage ratio is
greater than ≤ to Rating is Spread is
-100000 0.499999 D 15.00%
0.5 0.799999 C 12.00%
0.8 1.249999 CC 10.00%
1.25 1.499999 CCC 8.00%
1.5 1.999999 B- 5.25%
2 2.499999 B 5.00%
2.5 2.999999 B+ 3.75%
3 3.499999 BB 3.35%
3.5 3.9999999 BB+ 3.00%
4 4.499999 BBB 1.60%
4.5 5.999999 A- 1.10%
6 7.499999 A 1.00%
7.5 9.499999 A+ 0.85%
Page 1
Start here Ratings sheet
9.5 12.499999 AA 0.65%
12.5 100000 AAA 0.50%
Page 2
Start here Ratings sheet
se this spreadsheet.
ulation options in excel) is checked.
Small: <$5
or riskier firm, 3 if financial service firm) billion
Add back only long term interest expense for financial firms)
Use only long term interest expense for financial firms)
REF! All over the place, set the operating lease commitment question in cell F5
reset it to Yes. It should work.
rvice firms (default spreads are slighty different)
est coverage ratio is
Rating is Spread is
D 15.00%
C 12.00%
CC 10.00%
CCC 8.00%
B- 5.25%
B 5.00%
B+ 3.75%
BB 3.35%
BB+ 3.00%
BBB 1.60%
A- 1.10%
A 1.00%
A+ 0.85%
AA 0.65%
AAA 0.50%
Page 3
Operating Leases
Operating lease inputs
Operating lease expense in current year = $ 25.00
Operating Lease Commitments (From footnote to financials)
Year Commitment ! Year 1 is next year, ….
1 $ 24.00
2 $ 22.00
3 $ 22.00
4 $ 21.00
5 $ 20.00
6 and beyond $ 111.00
Pre-tax Cost of Debt = 8.45% ! If you do not have a cost of debt, use the attached ratings estimator
From the current financial statements, enter the following
Reported Operating Income (EBIT) = $ 50.00 ! This is the EBIT reported in the current income statement
Reported Debt = $ 92.97 ! This is the interest-bearing debt reported on the balance sheet
Reported Interest Expenses = $ 8.00
Output
Number of years embedded in yr 6 estimate = 5 ! I use the average lease expense over the first five years
to estimate the number of years of expenses in yr 6
Converting Operating Leases into debt
Year Commitment Present Value
1 $ 24.00 $ 22.13
2 $ 22.00 $ 18.71
3 $ 22.00 $ 17.25
4 $ 21.00 $ 15.18
5 $ 20.00 $ 13.33
6 and beyond $ 22.20 $ 58.39 ! Commitment beyond year 6 converted into an annuity for ten years
Debt Value of leases = $ 144.99
Restated Financials
Operating Income with Operating leases reclassified as debt = $ 62.25
Debt with Operating leases reclassified as debt = $ 237.96
Full Operating lease adjustment
Reported Operating income = $50.00
+ Current year's operating lease expense = $25.00
- Depreciation on leased asset = $14.50
Adjusted Operating Income $60.50
Page 4
Operating Leases
ed ratings estimator
current income statement
reported on the balance sheet
over the first five years
f expenses in yr 6
nnuity for ten years
Page 5