Investment management company streamlines municipal monitoring and climate risk assessment

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This company oversees a range of US public finance mutual funds with assets under management of $ 950 million. The growth in assets put great pressure on the credit team to create new investments and monitor existing holdings. Their credit models have not been recalibrated for several years, leading to ineffective manual waivers for new investments. For surveillance, data collection and dissemination was mainly manual, which led to an inefficient process. The emergence of climate risk as a key investment criterion has added an additional challenge. Meanwhile, the company was under pressure to keep staffing levels at or near current levels. Given the importance of these challenges, the company was interested in modernizing its credit and climate workflow processes. By working with S&P Global Market Intelligence (Market Intelligence), the company achieved its goals:

  • Streamline its credit and climate data collection, as well as its credit scoring process.
  • Understand the creditworthiness of their municipal investments using a CUSIP-based credit scoring model.
  • Better understand the impact of climate risk and the potential economic losses due to natural hazards.
  • Maintain existing staff levels and focus incremental efficiency gains on growing their business.
Pain points

The investment team was looking for incremental changes to improve their workflow. The business was growing, but they wanted to keep the staff at current levels. Their challenges included:

  • Heavy monitoring process: The process used by the company to conduct annual reviews of its investments was manual and time consuming.
  • Lack of understanding of climate risk: The company did not have the data or the process to assess the impact of climate or physical risk on its municipal investments.
  • Internal credit models have not been recalibrated annually: Since the company’s credit models were not recalibrated and updated annually, they did not reflect current rating agency methodology. As a result, they generated credit scores whose material credit scores differed from public scores. This resulted in time-consuming manual overrides.
  • Insufficient data coverage: The company spent more time trying to obtain and disseminate the necessary data than it did the analysis.
  • Gaps or lack of expertise for certain segments of public finance: The company did not pursue certain segments of public finance as it did not have the credit expertise for these areas and did not have the credit models specific to the appropriate segment (e.g. higher education, healthcare health, housing, general obligation, transport, water and sewers).

The company’s public finance team evaluated Market Intelligence’s Automated Public Finance Scoring Tool (PFAST) and felt that this solution would meet their needs.

The solution

Market Intelligence recommended PFAST, an Excel suite of credit score cards from Market Intelligence that is both an automated credit scoring and data solution that allows users to:

Assign credit scores to the vast majority of the company’s municipal customers

PFAST offers broad coverage of the public finance sector, including:

  • General obligation issuers or states, cities, counties and school districts
  • Water and sewer utilities
  • Non-profit health care including health systems and hospitals
  • Non-profit higher education including private and public / state institutions
  • Transport including airports, public transport, toll roads, bridges and tunnels
  • Lodging including single-family and multi-family agencies

Understanding the climate risks of investments

Understanding the sensitivity of an investment to 18 different natural hazards and the potential economic losses resulting from those natural disasters will help you better manage your clients more proactively. The PFAST also includes a summary environmental / social score based on quantitative data for each municipal entity for which data is available.

Differentiate your business from your competition by providing credit and climate information

PFAST provides credit and climate results that can be used in your analyzes. Take advantage of our ability to build local, regional and national benchmarks through our extensive database of rated and unrated issuers.

Automate spreading for all general duty debtors, water & sewer, healthcare, higher education and S&P rated airports
Market Intelligence has collected over three years of financial and economic data for all rated general bond issuers, water and sewage, healthcare, higher education and airports. Data and credit scoring are fully automated using just an identifier (CUSIP or S&P Capital IQ ID).

Monitor the credit quality of your customers in minutes
By simply entering an ID, a user can generate aggregate credit risk scores for your entire portfolio of public finance clients.

Conduct a scenario analysis
Additional functionality to perform “what if” scenario analysis for your municipal portfolio.

Key Benefits

The PFAST solution provides an automated credit scoring tool for all US cities, counties and school districts and water and sewer utilities. A similar approach is also available for the major rated income bond segments. The main advantages include:

  • Wide field of application with credit score cards and industry specific data for general and tax obligations including water and sewer, nonprofit healthcare, nonprofit higher education, transport and accommodation.
  • Climate risk data and scores which identifies the susceptibility and economic potential of 18 different natural hazards fully mapped in each US county.
  • Productivity gains with automated data collection and credit scoring of almost all cities, counties, school districts, special purpose districts, water and sewer utilities, including unrated entities.
  • Transparency of the methodology of the scorecard, including all risk factors, weights, benchmarks and scoring algorithms.
  • Ongoing training and analytical support to help groups understand the range of capacities available and continue to get the most out of solutions.
  • Get up to speed quickly in public finance credit analysis with our easy-to-use Scorecard user guides and 24/7/365 support from our global customer support team.
  • Validation assistance thanks to an annual technical documentation which explains the methodology and the tests of Scorecard.
  • Extensive coverage and continuously growing database financial and economic data of municipal entities.

Click here to learn more about the Automated Public Finance Rating Tool (PFAST), mentioned in this case study.

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