OREANDA-NEWS. Fitch Ratings has published an Exposure Draft of its revised Sovereign Rating Criteria, incorporating proposed changes to its criteria for the rating of sovereign issuers. The substance of the existing criteria, published in August 2014, remains unaltered, but the Exposure Draft incorporates proposals on the following three topics:

- The assignment of Fitch's sovereign ratings using a combination of the agency's existing proprietary Sovereign Rating Model (SRM) and a new Qualitative Overlay (QO).

- The introduction of a new scale for Short-term local currency (STLC) ratings for sovereigns and the introduction of guidance on the rating correspondence mapping from the Long-term to Short-term scales for both local currency (LC) and foreign currency (FC) Issuer Default Ratings (IDRs) to enhance transparency and consistency.

- The removal of the concept of materiality from our sovereign default definitions, to better align the definitions with those employed by other rating groups at Fitch.

Fitch expects the revised approach to the assignment of its sovereign ratings to have no impact on existing ratings or Outlooks as it essentially captures the way that the agency currently assigns its sovereign ratings. The changes proposed are more presentational than substantive in nature. The proposal involves the employment of Fitch's existing SRM as the starting point for assigning the agency's sovereign ratings. As Fitch recognises that no model can fully capture all the relevant influences on sovereign creditworthiness, we also plan to employ a QO designed to adjust for factors that are not reflected, or not fully reflected, in the SRM output for any given rating.

Moving STLC issue ratings such as treasury bills to the proposed new STLC 'F1+' scale from the Long-term local currency (LTLC) scale would affect rated issuances for an estimated 48 countries, although we do not envisage any changes in rating relativities from this transition. The introduction of guidance on the rating correspondence mapping from the Long-term to Short-term scales, based on an assessment of reserve currency flexibility and the country's international liquidity position, is likely to result in eight existing STFC ratings being upgraded by one notch and none being downgraded. Under the proposed new guidelines, 12 out of 13 STFC ratings would be rated at the higher of the two possible levels, at the points on the rating scale where that optionality exists. Adoption of the guidance would also result in all new STLC ratings being rated at the higher of the two possible levels.

The proposed removal of the concept of materiality from our sovereign default definitions would have no impact on existing ratings.