- A bond must have a credit rating that is deemed to be investment grade by at least two rating agencies.
- A bond must have a minimum par amount of C$100 million.
To determine that a bond has a credit rating that is deemed investment grade by at least two rating agencies, the S&P/TSX Canadian Bond Index Committee will use publicly available credit ratings provided by the Dominion Bond Rating Service, Fitch Ratings, Moody's Investor Service, and Standard & Poor's. A bond that meets the minimum ratings test will continue to be classified into one of four standard, Index Credit Ratings Sectors ('AAA', 'AA', 'A', 'BBB'). The allocation of Index bonds to Credit Rating Sectors will be based on a consensus approach: that is, the most commonly assigned credit rating among rating agencies will be used for classification purposes. The lowest, or most conservative, of available ratings will be used to classify bonds that have a split rating.
More than 98% of the bonds included in the Index today have ratings coverage by more than one rating agency. "This reflects a well-established practice for Canadian market participants to seek multiple opinions of credit quality," said David Blitzer, Managing Director and Chairman of the Index Committee at Standard & Poor's. "The rating rule change respects this desire for a performance benchmark to reflect a consensus view of credit risk."
To be eligible for inclusion in the Index, a bond must now have a minimum par amount of C$100 million. A bond that meets the minimum size rule and all other inclusion criteria will be held in the Index portfolio until such a time as its par amount falls below C$50 million.
The increase in the minimum par amount reflects the increasing size of bond issues. "The Index Advisory Panel agreed that increasing the minimum par amount would appropriately reflect changing issuance patterns, especially among corporate borrowers," said Mr. Blitzer. "Increasing the minimum par amount and the requirement that each Index bond have multiple price providers also will help to ensure that Index bonds are broadly distributed and available for purchase by investors."
The announced changes follow consultation with the S&P/TSX Canadian Bond Index Advisory Panel. The Advisory Panel is broadly representative of buy-side and sell-side market participants and its role is to provide input and feedback to the S&P/TSX Canadian Bond Index Committee to ensure that evolving investor needs are reflected in the Index. The announced changes reflect feedback received at an Advisory Panel meeting held in Toronto on June 22, 2005.
For detailed information of the new minimum ratings test and classification rule see "Rules Governing The Use of Credit Ratings in the S&P/TSX Canadian Bond Index" available on www.canadabondindices.standardandpoors.com .
About Standard & Poor's
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