Rating agency engagement for funds

Rating agencies can unlock access to capital sources you otherwise couldn’t reach, particularly insurance companies. A rated deal typically prices tighter than an unrated equivalent. But ratings come with significant cost, timeline, and ongoing obligations. As a credit fund, you need to understand when ratings add value, how to select agencies, and how to manage the relationship effectively.

This guide covers the fund manager’s perspective on rating agency engagement, from initial assessment through ongoing surveillance.

When ratings add value for funds

Required situations

Ratings are effectively required when:

Accessing insurance capital. Insurance companies represent one of the largest and most price-competitive investor pools in structured finance. Most insurers require rated securities for regulatory capital treatment (NAIC designation). If you want insurance participation in your term securitizations, you need ratings.

Public ABS issuance. SEC-registered public offerings require ratings. The investor base for public ABS has rating requirements, and the market expects ratings.

Certain bank investors. Some bank investors require ratings for favorable regulatory capital treatment (Basel RWA). Check with your target investors.

Not required situations

Ratings are typically unnecessary for:

Warehouse facilities. Banks and credit funds providing warehouse financing do their own credit analysis. Ratings don’t help and add cost.

Private placements to credit funds. Sophisticated credit investors (Ares, Apollo, Blackstone, etc.) underwrite independently. They may reference ratings but don’t require them.

Forward flows and whole loan sales. Buyers analyze collateral directly.

Back-leverage facilities. Repo and NAV facilities typically don’t require ratings on the underlying.

Cost-benefit framework

Before engaging rating agencies, run the economics:

Costs:

Upfront fees: $150K-$500K (one or two agencies)
Annual surveillance: $25K-$75K per agency
Timeline: Add 4-8 weeks to closing
Ongoing reporting obligations
Management time

Benefits:

Access to insurance capital (often $50M+ per investor)
Spread tightening: 25-75 bps vs. unrated private placement
Secondary market liquidity
Marketing credibility for future deals

For a $300M term deal, 50 bps of spread improvement saves $1.5M annually. Rating costs pay back quickly at this scale.

For a $100M deal, the math is tighter. Rating costs of $200K+ may consume much of the spread savings. Consider whether insurance capital access justifies the cost.

Understanding the major agencies

S&P Global Ratings

The largest ABS ratings franchise. Comprehensive coverage across asset classes with detailed methodology documents.

Strengths: Broad investor acceptance, deep auto and consumer loan expertise, strong analytical bench.

Approach: Known for detailed loan-level analysis and generally conservative stress assumptions.

Engagement style: Formal process, extensive documentation requirements, longer timelines for novel situations.

Moody’s Investors Service

Strong presence in CLOs, RMBS, and auto ABS. Methodology differs from S&P, so the same collateral pool can receive different ratings from each.

Strengths: Dominant in CLO ratings, sophisticated modeling infrastructure, extensive RMBS experience.

Approach: Emphasizes loss-given-default and recovery analysis; heavy focus on originator/servicer assessment.

Engagement style: Thorough, can be slower than alternatives, strong analytical rigor.

Fitch Ratings

Solid ABS coverage with particular strength in RMBS, autos, and credit cards.

Strengths: Strong RMBS franchise, good European coverage, detailed surveillance.

Approach: Heavy emphasis on performance triggers and structural protections.

Engagement style: Often slightly more flexible than S&P/Moody’s on timeline.

KBRA (Kroll Bond Rating Agency)

Newer agency with growing presence, particularly in esoteric and emerging asset classes.

Strengths: Willingness to rate non-traditional asset classes, responsive analyst teams, competitive on timelines.

Approach: More pragmatic about limited performance history; emphasizes originator quality.

Engagement style: Accessible, relationship-oriented, faster engagement than legacy agencies.

For first-time issuers or novel asset classes, KBRA is often the first call.

DBRS Morningstar

Strong Canadian presence and growing U.S. franchise.

Strengths: Canadian market dominance, competitive pricing, good real estate and infrastructure coverage.

Approach: Solid methodology but smaller analytical teams in some asset classes.

Engagement style: Often used as second rating to complement S&P or Moody’s.

Which agencies do investors require?

Survey your target investors before selecting agencies:

Insurance companies: Typically require two ratings for NAIC designation. S&P + Moody’s is the gold standard, but S&P + Fitch or S&P + KBRA increasingly accepted.

Bank investors: Often accept a single rating from S&P or Moody’s.

Credit funds: Usually don’t require ratings at all.

Before engaging agencies, confirm with your underwriter or placement agent which combinations your target investors actually require. Getting the wrong combination wastes money.

Pre-engagement vs. formal engagement

Pre-engagement discussions

Before committing capital to the formal rating process, have preliminary discussions with agencies. These are typically free or involve a modest fee ($10K-$25K).

Pre-engagement helps you understand:

Whether the agency will rate your asset class
General methodology concerns for your collateral
Likely rating range for your proposed structure
Timeline and fee expectations

What to prepare:

Executive summary of your origination business (or the originator you’re financing)
Proposed transaction structure and capital stack
Summary collateral statistics (average balance, FICO/score distribution, geographic concentration, WAC, WAL)
2-3 years of static pool performance data (or maximum available history)
Key risk factors and mitigants

The agency will provide feedback on credit enhancement levels, structural features they’d require, and any methodological obstacles. This is your opportunity to identify deal-killers before significant legal and structuring costs.

When pre-engagement matters most

Pre-engagement is most valuable when:

You’re rating an asset class for the first time
You’re using an agency for the first time
Your collateral has unusual characteristics
The originator’s performance track record is limited

For repeat issuers with the same agency, same asset class, and consistent collateral, pre-engagement may be unnecessary.

Formal engagement

Formal engagement means signing an engagement letter, paying an upfront fee (or committing to pay at closing), and beginning the full analytical process.

Once you formally engage:

You owe the fee. Even if you don’t close the deal, most engagement letters require payment of a significant portion.
The process is public. Your transaction will eventually have a published presale report and rating announcement.
Timeline pressure begins. Rating committee scheduling requires coordination with your closing timeline.

Don’t formally engage until you have high confidence the deal will close. Paying $150K+ for a rating on a deal that falls apart is an expensive lesson.

The rating process

Timeline

A typical rating process runs 4-8 weeks from formal engagement to rating publication:

Phase	Duration	Activities
Data submission	Week 1	Full loan tape, historical performance, servicing policies, legal docs
Initial analysis	Weeks 2-3	Agency runs cash flow models, reviews collateral, identifies questions
Q&A / clarification	Weeks 3-4	Back-and-forth on data issues, methodology points, structural questions
Management presentation	Week 4-5	You present to the rating team (and sometimes rating committee)
Rating committee	Week 5-6	Internal agency decision
Presale / publication	Weeks 6-8	Presale report drafted, reviewed, published; ratings announced

Complex deals (novel asset classes, large transactions, multiple tranches) take longer. First-time issuers should budget 8-12 weeks.

Information requirements

Agencies require comprehensive data. Prepare for:

Collateral data:

Full loan tape with all underwriting fields
Data dictionary explaining each field
3-5 years of static pool performance (or maximum available history)
Roll rate and delinquency transition matrices
Loss severity analysis
Prepayment data by vintage

Operational information:

Origination policies and underwriting guidelines
Credit decisioning process and exception tracking
Servicing policies (collections, modifications, charge-off timing)
Quality control and audit procedures
Key personnel and organizational structure

Financial information:

Audited financial statements (2-3 years)
Liquidity position and funding sources
Contingent liabilities and litigation

Legal and structural:

Draft transaction documents
SPV structure and bankruptcy remoteness analysis
True sale and perfection opinions (or draft forms)

Management presentation

You’ll present to the rating team and potentially the rating committee. This is not a sales pitch; it’s a credit assessment.

The agency evaluates:

The business: How does the originator originate? What’s their competitive advantage?
Credit discipline: How are underwriting standards maintained under growth pressure?
Operational resilience: What happens if key people leave? How is servicing stress handled?
Data integrity: Can you substantiate the performance data provided?

Come prepared for detailed questions. Agencies will challenge optimistic assumptions. If the loss rate has been 3% and projections show 2.5%, expect to defend that projection.

Don’t oversell. Agencies are professional skeptics. Unsubstantiated claims damage credibility. If you don’t know an answer, say so and follow up.

Rating committee

The rating committee is the agency’s internal decision-making body. The analyst presents the credit analysis; the committee votes on the rating. You won’t be in the room.

Factors influencing committee decisions:

Analytical work performed by coverage team
Peer comparison to other issuers in the asset class
Structural protections relative to historical performance
Originator/servicer assessment

If the committee has concerns, the analyst may come back with additional questions.

Preliminary vs. final rating

The preliminary rating (sometimes called “expected rating”) is what appears in the presale report, subject to review of final documentation.

The final rating is assigned at or shortly after closing, once the agency confirms final documents match the structure analyzed, collateral composition meets eligibility criteria, and all conditions precedent are satisfied.

In most cases, preliminary and final ratings match. Discrepancies occur when final documents materially differ from draft or closing collateral diverges from the analyzed pool.

Rating agency fees

New issue fees

Deal Size	Typical Fee Range (per agency)
Under $200M	$100K-$175K
$200M-500M	$150K-$250K
$500M-1B	$200K-$350K
Over $1B	$300K-$500K+

Fee drivers include:

Asset class novelty: Established asset classes cost less than esoteric collateral
Number of tranches: More tranches means more analysis
Structural complexity: Master trusts, prefunding, revolving periods add work
Timeline: Rush jobs may incur premium fees

Surveillance fees

Annual surveillance fees to maintain the rating:

Deal Size	Annual Surveillance
Under $200M	$25K-$40K
$200M-500M	$35K-$55K
Over $500M	$50K-$75K+

Surveillance fees are typically paid from the waterfall, senior to noteholders.

One rating vs. two

Many investors (particularly insurance companies) require two ratings. Cost structure:

First agency: Full fee ($150K-$300K)
Second agency: Often 10-20% discount on standard fees

Budget 1.5x-1.8x for dual ratings. The incremental cost is worth it if you’re targeting insurance capital.

Fee negotiation

Rating agency fees are more negotiable than agencies suggest:

Repeat issuers: If you issue quarterly, you have leverage
Programmatic shelves: Agreeing to rate multiple deals can reduce per-deal fees
Competitive situations: If you’re genuinely considering a different agency, fees may flex

For first-time issuers on a single deal, expect limited flexibility.

Illustrative pricing. See pricing disclaimer.

Building analyst relationships

Why relationships matter

For programmatic issuers, the rating agency relationship directly affects execution:

A consistent analyst who knows your business can expedite repeat transactions
They understand your performance history and know your team
They can advocate internally when questions arise
They flag concerns early rather than at committee

Maintaining contact between deals

Don’t disappear after closing:

Quarterly performance updates. Even when you’re not in the market, provide quarterly performance data. This keeps your analyst current and reduces ramp-up time for the next deal.

Proactive communication on changes. If performance shifts, call your analyst before they see it in the tape. If you’re changing underwriting, let them know. Surprises damage relationships.

Industry dialogue. Attend agency conferences and educational sessions. Build familiarity beyond specific transactions.

Managing multiple agencies

If you use multiple agencies (S&P + KBRA, for example):

Maintain relationships with both independently
Don’t play agencies against each other publicly
Provide consistent information to all agencies
Understand methodology differences and prepare accordingly

Ongoing surveillance

What surveillance covers

After closing, agencies monitor your deal throughout its life:

Performance review. Monthly or quarterly analysis of collateral performance against expectations.

Covenant compliance. Verification that triggers and covenants are being tested properly.

Structural integrity. Confirmation that waterfall payments are correct.

Rating affirmation or action. Periodic confirmation that current ratings remain appropriate.

Reporting requirements

Each agency specifies reporting requirements in the engagement letter:

Report	Frequency	Contents
Servicer report	Monthly	Payment activity, delinquency, losses, prepayments
Collateral tape	Monthly/Quarterly	Loan-level data updated for performance
Compliance certificate	Quarterly	Trigger and covenant status
Audited financials	Annual	Originator financial condition

Meet deadlines. Late reports trigger questions and potentially negative surveillance commentary.

Managing deterioration

If performance deteriorates:

Call your analyst before they see it in the data. Explain what’s happening and why.
Describe what you’re doing about it. Remediation plans matter.
Provide context. Seasonal patterns, macro factors, one-time issues.
Be realistic. Don’t promise improvements you can’t deliver.

Material deterioration can lead to:

Outlook change: Rating outlook moves to negative, signaling potential future action
Watch list: Rating placed on watch for possible downgrade within 90 days
Downgrade: Rating lowered to reflect increased credit risk

Proactive communication produces better outcomes than waiting to be asked.

Asset class considerations

Agency expertise and appetite vary by asset class.

Established asset classes

Auto loans and leases. Most established ABS asset class. All five agencies rate auto. Methodologies are mature and predictable.

Consumer unsecured. S&P and Moody’s have strong practices. KBRA has been receptive to fintech lenders.

Emerging and esoteric

Equipment finance. Fewer rated deals means less benchmarking. S&P and KBRA both rate equipment ABS.

Esoteric asset classes. For non-traditional collateral (music royalties, litigation finance, data center revenues):

KBRA: Generally most receptive to novel asset types
Fitch and DBRS: Selectively engaged
S&P and Moody’s: Typically more cautious on first-of-kind structures

If you’re bringing a novel asset class, start with pre-engagement calls to gauge appetite.

Fintech-originated

Fintech deals receive heightened originator scrutiny given limited operating history. Agencies focus on:

Underwriting consistency during scale-up
Unit economics and path to profitability
Management team experience
Servicing capability under stress

KBRA has rated more fintech ABS than legacy agencies, making them often the first call for emerging originators.

Rating agency selection checklist

Initial assessment

Confirm ratings are needed for target investor base
Survey target investors for agency requirements
Assess asset class coverage by agency
Review published methodology for your asset class
Estimate total rating costs (upfront + surveillance)

Pre-engagement

Prepare executive summary and collateral data
Schedule preliminary calls with 2-3 agencies
Assess likely rating range and enhancement requirements
Identify methodology concerns or gaps
Evaluate agency responsiveness and expertise

Formal engagement

Select agencies based on investor requirements and pre-engagement
Negotiate fees (especially for repeat issuers)
Execute engagement letter
Assemble full data package
Coordinate timeline with legal and structuring teams

Process management

Designate single point of contact for agency communication
Respond to data requests within 24-48 hours
Prepare management presentation thoroughly
Build buffer into timeline for rating committee scheduling
Coordinate presale review with legal and underwriting

Post-closing

Establish surveillance reporting calendar
Meet reporting deadlines consistently
Provide quarterly performance updates
Communicate proactively on any changes or concerns
Maintain analyst relationship between deals