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 = 1 (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) = 8863 (Add back only long term interest expense fo Enter current interest expenses = 369 (Use only long term interest expense for fina Enter current long term government bond rate = 2.00% Output Interest coverage ratio = 21.24 Estimated Bond Rating = AAA Note: If you get REF! All over the place, set the operati Estimated Default Spread = 0.40% to No, and then reset it to Yes. It should work. Estimated Cost of Debt = 2.40%

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 12.00% -100000 0.049999 0.2 0.649999 C 10.50% 0.05 0.099999 0.65 0.799999 CC 9.50% 0.1 0.199999 0.8 1.249999 CCC 8.75% 0.2 0.299999 1.25 1.499999 B7.25% 0.3 0.399999 1.5 1.749999 B 6.50% 0.4 0.499999 1.75 1.999999 B+ 5.50% 0.5 0.599999 2 2.2499999 BB 4.00% 0.6 0.749999 2.25 2.49999 BB+ 3.00% 0.75 0.899999 2.5 2.999999 BBB 2.00% 0.9 1.199999 3 4.249999 A1.30% 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 0.70% 2.5 2.99999 8.50 100000 AAA 0.40% 3 100000 For smaller and riskier firms If interest coverage ratio is greater than to -100000 0.499999 0.5 0.799999 0.8 1.249999 1.25 1.499999 1.5 1.999999 2 2.499999 2.5 2.999999 3 3.499999 3.5 3.9999999 4 4.499999 4.5 5.999999 6 7.499999 7.5 9.499999

Rating is D C CC CCC BB B+ BB BB+ BBB AA A+

Spread is 12.00% 10.50% 9.50% 8.75% 7.25% 6.50% 5.50% 4.00% 3.00% 2.00% 1.30% 1.00% 0.85%

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Start here Ratings sheet 9.5 12.5 12.499999 100000 AA AAA 0.70% 0.40%

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Start here Ratings sheet

se this spreadsheet.

ulation options in excel) is checked.

or riskier firm, 3 if financial service Small:firm) <$5 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 12.00% C 10.50% CC 9.50% CCC 8.75% B7.25% B 6.50% B+ 5.50% BB 4.00% BB+ 3.00% BBB 2.00% A1.30% A 1.00% A+ 0.85% AA 0.70% AAA 0.40%

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Operating Leases Operating lease inputs Operating lease expense in current year = Operating Lease Commitments (From footnote to financials) Year Commitment ! Year 1 is next year, . 1 $ 471.00 2 $ 378.00 3 $ 295.00 4 $ 225.00 5 $ 163.00 6 and beyond $ 791.00 Pre-tax Cost of Debt = 2.40%

863.00

! 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) = $ 8,863.00 ! This is the EBIT reported in the current income statement Reported Debt = $ 14,311.00 ! This is the interest-bearing debt reported on the balance sheet Reported Interest Expenses = $ 369.00 Output Number of years embedded in yr 6 estimate = 3 ! 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 $ 471.00 $ 459.96 2 $ 378.00 $ 360.49 3 $ 295.00 $ 274.74 4 $ 225.00 $ 204.64 5 $ 163.00 $ 144.77 6 and beyond $ 263.67 $ 670.13 ! Commitment beyond year 6 converted into an annuity for ten years Debt Value of leases = $ 2,114.73 Restated Financials Operating Income with Operating leases reclassified as debt = Debt with Operating leases reclassified as debt =

$ 8,913.75 $ 16,425.73

Full Operating lease adjustment Reported Operating income = + Current year's operating lease expense = - Depreciation on leased asset = Adjusted Operating Income

$8,863.00 $863.00 $264.34 $9,461.66

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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

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