Credit Ratings Agencies

RECENT NEWS
The Straits Times  Sep 26  Comment 
September 27, 2014 1:10 AM FAR East Hospitality Trust's (FEHT) joint venture to develop a $443.8 million hotel project in Sentosa would be good for its credit rating despite oversupply risks, Fitch Ratings said yesterday. The credit rating agency...
Wall Street Journal  Sep 26  Comment 
Tesco's shock accounting problem has knocked its credit standing and threatens to push its credit rating into worrying territory.
Insurance Journal  Sep 26  Comment 
A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit rating of “a+” of Lloyd’s Syndicate 510 (United Kingdom), which is managed by RJ Kiln & Co. Limited (RJ Kiln). The outlook for both ratings … The...
WA Business News  Sep 26  Comment 
Standard & Poor's says Western Australia is unlikely to get a credit rating upgrade soon, but it seems encouraged by government measures to improve the state's finances.
Japan Today  Sep 25  Comment 
Standard & Poor's said Thursday that it had affirmed its long-term sovereign credit ratings on Japan at 'AA-' but the outlook remained negative, despite efforts to boost the nation's growth, dubbed Abenomics. S&P also affirmed its short-term...
DailyFinance  Sep 25  Comment 
A.M. Best has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of Park Assurance Company (Park) (Burlington, VT). The outlook for both ratings is stable. The ratings of Park...
DailyFinance  Sep 25  Comment 
MALVERN, PA -- (Marketwired) -- 09/25/14 -- CubeSmart (NYSE: CUBE) announced today that its senior unsecured bonds and issuer ratings were upgraded to Baa2 from Baa3 by Moody's Investors Service with a stable outlook. Additionally, the Company's...
Insurance Journal  Sep 23  Comment 
A.M. Best has placed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Gulf Reinsurance Limited (Gulf Re) (United Arab Emirates) under review with negative implications. The action follows an accepted...
SeekingAlpha  Sep 22  Comment 
By Wolf Richter: It’s very risky for an American credit ratings agency to downgrade the US Government. Standard & Poor’s found out when it stripped the US off its AAA rating in 2011 over the debt-ceiling charade. The Department of Justice...
MarketWatch  Sep 22  Comment 
Atlantic City's municipal bond credit rating was lowered one notch to BBB+ from A- by Standard & Poor's Ratings Services on Monday. The downgrade, which includes a negative outlook, comes as the New Jersey city faces strains on its tax revenue...




 

Definition: A credit ratings agency is a company that assigns credit ratings to institutions that issue debt obligations (i.e. assets backed by receivables on loans, such as mortgage-backed securities. These institutions can be companies, cities, non-profit organizations, or national governments, and the securities they issue can be traded on a secondary market.

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A credit rating measures credit worthiness, or the ability to pay back a loan. It affects the interest rate applied to loans - interest rates vary depending on the risk of the investment. A low-rated security has a high interest rate, in order to attract buyers to this high-risk investment. Conversely, a highly-rated security (carrying a AAA rating, like a municipal bond which is backed by stable government agencies) has a lower interest rate, because it is a low-risk investment. These low-risk bonds are available to a wide range of investors, whereas high-risk bonds cater to a narrow investing demographic.

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Companies that issue credit scores for individuals are usually called credit bureaus and are distinct from corporate ratings agencies.

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Big Three

The top three credit ratings agencies in the United States are:

In the wake of recent credit-market turmoil, some niche agencies are picking up market share or at least additional visibility. Among the niche agencies are DBRS and Egan-Jones. Cash loans australia

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Rating Grades

Each rating agency has developed its own system of rating sovereign and corporate borrowers. Fitch Ratings developed a rating system in 1924 that was adopted by Standard & Poor's. Moody's grading is slightly different. Moody's sometimes argues that their ratings embed a conceptually superior approach that directly considers not only the likelihood of default but also the severity of loss in the event of default.

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Long Term Credit Rankings?

Fitch Ratings and Standard & Poor's use a system of letter sliding from the best rating "AAA" to "D" for issuers already defaulting on payments.

  • Investment Grade
    • AAA  : best quality borrowers, reliable and stable without a foreseeable risk to future payments of interest and principal
    • AA  : very strong borrowers; a bit higher risk than AAA
    • A  : upper medium grade; economic situation can affect finance
    • BBB  : medium grade borrowers, which are satisfactory at the moment
  • Non-Investment Grade
    • BB  : lower medium grade borrowers, more prone to changes in the economy, somewhat speculative
    • B  : low grade, financial situation varies noticeably, speculative
    • CCC  : poor quality, currently vulnerable and may default
    • CC  : highly vulnerable, most speculative bonds
    • C  : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations
    • CI  : past due on interest
    • R  : under regulatory supervision due to its financial situation
    • SD  : has selectively defaulted on some obligations
    • D  : has defaulted on obligations and S&P believes that it will generally default on most or all obligations
    • NR  : not rated


Moody's ratings follows a different system

  • Investment Grade
    • Aaa: Obligations rated Aaa are judged to be of the highest quality, with the "smallest degree of risk"
    • Aa1, Aa2, Aa3: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk, but "their susceptibility to long-term risks appears somewhat greater".
    • A1, A2, A3: Obligations rated A are considered upper-medium grade and are subject to low credit risk, but that have elements "present that suggest a susceptibility to impairment over the long term".
    • Baa1, Baa2, Baa3: Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such "protective elements may be lacking or may be characteristically unreliable".
  • Non-Investment Grade
    • Ba1, Ba2, Ba3: Obligations rated Ba are judged to have "questionable credit quality."
    • B1, B2, B3: Obligations rated B are considered speculative and are subject to high credit risk, and have "generally poor credit quality."
    • Caa1, Caa2, Caa3: Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk, and have "extremely poor credit quality. Such banks may be in default..."
    • Ca: Obligations rated Ca are highly speculative and are "usually in default on their deposit obligations".
    • C: Obligations rated C are the lowest rated class of bonds and are typically in default, and "potential recovery values are low".
  • Others
    • WR: Withdrawn Rating
    • NR: Not Rated
    • P: Provisional

Quick Quid

FHA Streamline Mortgage What this means to you if you are currently shpniopg for an FHA streamline refinance is that you need to ask the question “are you requiring a credit score for the FHA streamline program?” and expect many lenders to say “yes” .

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Recent developments

SInce the beginning of the credit crunch in early 2007 rating agencies have come under fire for their high ratings of mortgage backed securities (MBS) that did not reflect the financial stability of the borrowers. This has also reopened a discussion whether rating agencies, who get paid by borrowers for their rating, are not in a conflict of interest.

Description Moody\'s S&P Fitch
Maximum SafetyAaaAAAAAA
High gradeAa1AA+AA+
High gradeAa2AAAA
High gradeAa3AA-AA-
Higher medium GradeA1A+A+
Higher medium GradeA2AA
Higher medium GradeA3A-A-
Lower medium GradeBaa1BBB+BBB+
Lower medium GradeBaa2BBBBBB
Lower medium GradeBaa3BBB-BBB-
SpeculativeBa1BB+BB+
SpeculativeBa2BBBB
SpeculativeBa3BB-BB-
Highly SpeculativeB1B+
Highly SpeculativeB2BB
Highly SpeculativeB3B-
Substantially riskyCCC+CCC+
Substantially riskyCaaCCCCCC
May be in defaultCaCCCC
Extremely SpeculativeCCC
Income bonds - not paying interestCI
DefaultDDD
DefaultDD
DefaultDD
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