S&P to Increase Risk Analysis

Standard & Poor's Ratings Services said yesterday it will beef up its credit ratings process for nonfinancial companies and begin to include commentary on its findings in reports it issues in the fourth quarter.

"We will begin to incorporate ERM into discussions with rated companies in the third quarter and begin to include commentary in our reports in the fourth quarter," said Steven Dreyer, managing director of corporate ratings in New York. "Ultimately, we will enhance transparency by providing investors and issuers our views of a management team's ability to understand, articulate, and successfully manage risk."

"The benefits of the ERM enhancement will be to make the process of forming our rating opinions more forward looking, achieve finer differentiation among ratings, and facilitate construction of 'what if' forecast scenarios," Dreyer said.

Reviews will focus predominantly on risk-management culture and strategic risk management, two universally applicable aspects of enterprise risk management (ERM). No immediate rating changes are likely to result from the reviews.

Standard & Poor's will defer formal scoring of companies' ERM capabilities (e.g., "strong," "adequate," "weak," etc.) until it has concluded a "sufficient number of reviews to permit reliable benchmarking and published evaluation criteria," which is unlikely to occur before 2009.

Credit ratings and rating outlooks would be affected in the meantime only if S&P sees extraordinary conditions that change its existing perception of a company's business profile, the company said in its report.