What Is an Unsolicited Credit Rating? SEBI Rules

An unsolicited credit rating is one a credit rating agency assigns without an agreement with the issuer. SEBI defines it by what it is not: a credit rating "not arising out of the agreement between a CRA and the issuer". The rules that follow are mostly about labelling and disclosure, because the missing agreement is exactly what a reader needs to know about.

How is an unsolicited rating labelled?

Para 22.1 sets one presentational rule and it is unusually specific: the credit rating symbol shall be accompanied by the word "UNSOLICITED" in the same font size.

The font-size clause is the substance. A disclaimer set in small print below a headline rating symbol would satisfy a labelling requirement in form while defeating it in practice, and SEBI closed that off.

Does the CRA still have to monitor it?

Yes. Para 22.2 states that a CRA shall monitor and disclose the credit rating during the life of the rated securities, as if it were a solicited rating.

That is worth sitting with. Once a CRA publishes an unsolicited rating it takes on the ongoing surveillance obligation without the issuer relationship that normally supplies the information. The rating agency cannot publish an opinion and walk away from it.

What must be disclosed about how it was arrived at?

Para 30.3 requires the CRA, while publishing unsolicited ratings and their movements, to follow every requirement applicable to solicited ratings and then add two disclosures:

1. The extent of participation by the issuer, its management, bankers and auditors in the credit rating process.
2. The information used and its source in arriving at and reviewing the credit rating.

Read together, those two answer the question a reader actually has about an unsolicited rating: how much did the agency know, and from where.

Para 30.1 sits behind both. A CRA must formulate and disclose its policies, methodology and procedures in detail regarding solicited and unsolicited credit ratings, so the framework is published in advance rather than explained case by case.

Where is the list of unsolicited ratings published?

Para 27.4.5 requires each CRA to disclose, in the format prescribed at Annexure 29:

• All the unsolicited ratings carried out in the last three financial years.
• The names of issuers, out of those, that were given a solicited rating in the last financial year.

The second limb is the interesting one. It puts on the public record the cases where an unsolicited rating was followed by a paying relationship with the same issuer, which is the specific conflict the disclosure exists to surface.

Unsolicited is not the same as INC

These two get confused, and they describe opposite situations:

• An unsolicited rating never had an issuer agreement behind it. The CRA chose to rate.
• An INC rating, meaning issuer not cooperating, started as a solicited rating and continued after the issuer stopped supplying information.

Both signal that the agency is working with less than a full information set, and both carry a mandatory tag. The route in is different, and so is what the tag tells you about the issuer's conduct.

How to read an unsolicited rating in the record

• Check the tag on the symbol itself, not the surrounding prose, since that is where SEBI put the requirement.
• Read the participation disclosure under para 30.3 before treating the rating as comparable to a solicited one.
• Check the Annexure 29 table for whether the issuer later became a paying client.
• Read the rationale, not just the symbol. See how to read a rating rationale and how to check credit rating revisions for the surrounding record, and what is a credit rating for the basics.

Flock reports the filings and disclosures themselves, each stamped with its date and linked back to the source that published it. What any of it means for you is your call to make.