preview

Case1 final revised Essay

Decent Essays
Kroll Bond Rating Agency (HBS 9-212-034)
October 23, 2014
Tzyy-Shiuan Chiu, Yuanyuan Hao, Mofan Shi, Hsin-Ping Tso
A Good Time and A Good Idea to Enter the Credit Rating Business
Jules Kroll is planning to enter into the ratings industry. To determine whether it is a good idea and a good time for him to enter into the new business, we project the 5-year NPV for KBRA and apply SWOT analysis to KBRA. The 5-year projected NPV is $341.1 million, a positive number. It is a good time and a good idea for KBRA to enter the business. However, through our SWOT analysis, it would be difficult for KBRA to become competitive in a short time. Thus we suggest it add a credit rating division into the company to make attempts to it but not start up a
…show more content…
Also, without revenues from users of ratings, it will be tougher to finance startup costs and future operating.
Beside internal factors, we examine the external factors, Opportunities and Threats, of KBRA. The incumbent credit raters’ fail in the financial crisis gave an opportunity for new rating agencies like KBRA. After the financial crisis, the government and the investors realized the importance of appropriate corporate credit rating. The government might tend to subsidize newly-established rating organizations and create new regulations for credit rating in order to eliminate the oligopoly of three big financial agencies. KBRA benefits from such environment. Also, it is easier for small or new rating agencies like KBRA to apply a new revenue model under revised regulations.
After the financial crisis, many new rating agencies announced their entry into the credit rating business. Many of them were prominent to the public and owned a great quantity of resource. The entering of new firms made the credit rating industry competitive and thus posed a threat on KBRA.
The Failures of Incumbent Credit Raters
The incumbent credit raters had received severe criticism following the collapse in creditworthiness and prices of mortgage-and asset-backed securities during the financial crisis in 2008 and 2009. The three large rating agencies were accused of facilitating a vast bubble in these securities by issuing overly
    Get Access