Internal Rating Systems and the Bank-Firm Relationship by Bernardino Quattrociocchi

Author:Bernardino Quattrociocchi
Language: eng
Format: epub
Publisher: Palgrave Macmillan

5.2 The financing of business networks

In order to define an effective process of assigning ratings to a business network, we need to define the circumstances under which networks would receive funding and, therefore, be subject to analysis and assessments by the banking system, aiming at an appreciation of the network’s creditworthiness.

The identification procedures and methodologies that should comprise the assignment process and quantification of a network rating depend on the subject, such as the recipient of the funding (Fig. 5.1). In fact, from the bank’s point of view, financing a network may mean both lending to the individual businesses that are part of the network and to the network as a whole, distinguished from the individual businesses that make it up.

In the first case, the network is considered only indirectly to be a recipient of funding; in fact, the rating will necessarily be assigned to individual companies; in the second case, direct financing of the network, there are two specific cases:

– When aggregations, although not provided with legal and patrimonial autonomy, may be financed according to the logic of specialized lending: the “network-object”;

– When combinations with legal personality and equity are formed: “network-subject.”

To deal with problems associated with direct funding, networks are divided into two main categories (De Laurentis, 2011a): on the one hand, the financing of individual firms in the network and, on the other hand, the financing of the network itself (Fig. 5.1). The category of network-object includes those combinations for which not all elements of evaluation, basic or distinctive, are clearly identifiable.

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