On March 19, 2025, S&P Global Ratings published a request for comment (RFC) titled "Request For Comment: CDOs Of Project Finance Debt: Global Methodology And Assumptions." Below we answer some questions on our proposed update to these criteria and the data sources used.
FREQUENTLY ASKED QUESTIONS
Why is S&P Global Ratings proposing to update its methodology for analyzing project finance (PF) collateralized debt obligations (CDOs)?
Our current criteria for rating these instruments were released in 2014. We recently gathered and reviewed significant data on the PF market. This data suggested that it could be appropriate to refresh the calibration underpinning some aspects of the analysis of PF assets (including recoveries).
In addition, the financing universe has grown significantly over the past decade, and so has the number of PF sectors and sub-sectors used to classify the assets.
What are the data sources underlying the proposed updates?
Our proposed updates to recovery assumptions are informed by both internal and external data, including aggregated and anonymized project finance loan performance data provided by S&P Global Market Intelligence, a division of S&P Global. We also compared our conclusions with those from other external sources.
What are the key elements being updated?
The key elements that we propose to change include recovery rates and timelines (which are particularly relevant to emerging markets and developing economies [EMDEs; see next question]), asset type classifications, and certain cash flow assumptions. Specifically, we propose to:
- Update our recovery assumptions for senior secured first-lien project finance loans without a recovery rating. We assume a single recovery rate assumption across all jurisdictions, as data has not shown significant differences in the levels of recoveries achieved across jurisdictions;
- Differentiate recovery lag based on jurisdictions and the robustness of their legal framework. The proposed recovery lags would vary from 24 to 42 months, depending on the jurisdiction, up from our current assumption of 12 months;
- Update our PF asset type classification to 35 sectors from eight, reflecting the evolution of the PF market; and
- Align some of the cash flow assumptions with our corporate CLO criteria.
How will this proposal affect EMDEs?
Under the proposed criteria, we differentiate our recovery assumptions by jurisdiction. Under our jurisdiction ranking assessments (JRA) criteria, we assign one of three country groups--A, B or C--to different countries, which are an indicator of the relative degree of protection that a country's insolvency laws and practices afford to creditors' interests, and of the predictability of those proceedings. (We use Group C when we don't have a JRA for a given country.) Some of the most significant proposed changes in this RFC are for Groups B and C, which generally correspond to EMDEs.
The key changes proposed include higher recovery rates along with longer timelines for PF assets because we generally assume a full workout recovery process. Overall, we believe the combined proposed assumptions lowers the risk profile of these transactions. As it pertains to EMDEs, we're proposing:
- A significant increase in recovery assumptions for senior secured first-lien PF assets without a recovery rating. For example, for countries we categorize in the B and C groups, we're proposing to increase recovery assumptions to 70% from 49% and 29%, respectively, under a 'BBB' stress scenario.
- An increase in the recovery time lag to 42 months from 12.
What's the expected ratings impact of this proposal?
We expect no impact on our seven project finance CDO ratings, which are from two transactions.
Related Publications
- Request For Comment: CDOs Of Project Finance Debt: Global Methodology And Assumptions
- Methodology: Jurisdiction Ranking Assessments
- 1995-2016 Global Bank Loan Unrated Project Finance Default And Recovery Report
This report does not constitute a rating action.
| Analytical Contacts: | Yann Marty, Paris + 1 (212) 438 3601; yann.marty@spglobal.com |
| Yalan Tao, Hong Kong + 852 2532 8033; yalan.tao@spglobal.com | |
| Methodology Contacts: | Mauricio Tello, Englewood + 1 (212) 438 1206; mauricio.tello@spglobal.com |
| Claire K Robert, Paris + 33 14 420 6681; claire.robert@spglobal.com | |
| Eduard Sargsyan, New York + 1 (212) 438 1455; Eduard.Sargsyan@spglobal.com |
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