Question all,
Im trying to set a credit rating for a 5 year loan. However the loan's interest rate is to be reset every 1 year period.
Would I base the interest rate of the loan on the 5 year rating, or the 1 year rating?
Thanks in advance
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How is the rate determined every year? Guessing it's a market rate + risk premium so you set the rating based on the risk premium being assigned (the total rate is irrelevant).
If the rate is adjusted each year with the ability to pay in mind you could factor that into the 5 year rating. But I wouldn't use a one year rating as that would, for me at least, be like treating the facility like 5 one year loans, which it isn't.
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