WHAT ARE
CREDIT
RATINGS?


Credit ratings are opinions about credit risk. Standard & Poor’s ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time.

Credit ratings can also speak to the credit quality of an individual debt issue, such as a corporate or municipal bond, and the relative likelihood that the issue may default.

Credit ratings are not absolute measure of default probability. Since there are future events and developments that cannot be foreseen, the assignment of credit ratings is not an exact science. Credit ratings are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or debt issue will default.

Explore our scale to learn how our opinion is reflected in each rating

AAA INVESTMENT GRADE Extremely strong capacity to meet financial commitments

AA INVESTMENT GRADE Very strong capacity to meet financial commitments

A INVESTMENT GRADE Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances

BBB INVESTMENT GRADE Adequate capacity to meet financial commitments, but more subject to adverse economic conditions

BBB- INVESTMENT GRADE Considered lowest investment-grade by market participants

BB+ SPECULATIVE GRADE Considered highest speculative-grade by market participants

BB SPECULATIVE GRADE Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions

B SPECULATIVE GRADE More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments

CCC SPECULATIVE GRADE Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments

CC SPECULATIVE GRADE Highly vulnerable; default has not yet occurred, but is expected to be a virtual certainty

C SPECULATIVE GRADE Currently highly vulnerable to non-payment, and ultimate recovery is expected to be lower than that of higher rated obligations

D SPECULATIVE GRADE Payment default on a financial commitment or breach of an imputed promise; also used when a bankruptcy petition has been filed or similar action taken

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What Is A Rating?

This video explains who we are, what we do, and the advantages of getting a credit rating.

This video explains who we are, what we do, and the advantages of getting a credit rating.

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WHY ARE
CREDIT
RATINGS
USEFUL?




Credit ratings may play a useful role in enabling corporations and governments to raise money in the capital markets. Instead of taking a loan from a bank, these entities sometimes borrow money directly from investors by issuing bonds or notes. Investors purchase these debt securities, such as municipal bonds, expecting to receive interest plus the return of their principal.

Credit ratings may facilitate the process of issuing and purchasing bonds and other debt issues by providing an efficient, widely recognized, and long-standing measure of relative credit risk. Credit ratings are assigned to issuers and debt securities as well as bank loans. Investors and other market participants may use the ratings as a screening device to match the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions.

RAISING CAPITAL THROUGH RATED SECURITIES

ISSUERS
INTERMEDIARIES
INVESTORS

ISSUERS

Issuers, including corporations, financial institutions, national governments, states, cities and municipalities, use credit ratings to provide independent views of their creditworthiness and the credit quality of their debt issues.

Issuers may also use credit ratings to help communicate the relative credit quality of debt issues, thereby expanding the universe of investors. In addition, credit ratings may help them anticipate the interest rate to be offered on their new debt issues.

INTERMEDIARIES

Investment bankers help facilitate the flow of capital from investors to issuers. They may use credit ratings to benchmark the relative credit risk of different debt issues, as well as to set the initial pricing for individual debt issues they structure. They also use credit ratings to help determine the interest rate these issues will pay.

Investment bankers may also serve as arrangers of debt issues. In this capacity, they may establish special purpose entities that package assets, such as retail mortgages and student loans, into securities or structured finance instruments, which they then market to investors.

INVESTORS

Investors most often use credit ratings to help assess credit risk and to compare different issuers and debt issues when making investment decisions and managing their portfolios. Individual investors, for example, may use credit ratings in evaluating the purchase of a municipal or corporate bond from a risk tolerance perspective.

Institutional investors, including mutual funds, pension funds, banks, and insurance companies, often use credit ratings to supplement their own credit analysis of specific debt issues. In addition, institutional investors may use credit ratings to establish thresholds for credit risk and investment guidelines.




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THE RATING
PROCESS



Some credit rating agencies specialize in analyzing the credit risk of issuers and individual debt issues. They formulate and disseminate ratings opinions that are used by investors and other market participants who may consider credit risk in making their investment and business decisions.

Credit rating agencies assign ratings to issuers, such as corporations and governments, as well as to specific debt issues, such as bonds, notes, and other debt securities

Our ratings opinions are based on analysis by experienced professionals who evaluate and interpret information received from issuers and other available sources to form a considered opinion. In rating an issuer an analyst is assigned, [often] in conjunction with a team of other analysts, to take the lead in evaluating the entity’s creditworthiness. Typically, analysts obtain information from published reports, as well as from interviews and discussions with the issuer’s management. They use that information and apply their analytical judgement to assess the entity’s financial condition, operation performance, policies and risk management strategies.

STEP BY STEP

Click on each step for more details on our ratings process.

1
Pre-Evaluation

Contract

The issuer requests a rating and signs an engagement letter.

Contract
2
Management Meeting

Pre-Evaluation

We assemble a team of analysts to review pertinent information.

Pre-Evaluation
3
Analysis

Management Meeting

Analysts meet with management team to review and discuss information.

Management Meeting
4
Rating Committee

Analysis

Analysts evaluate information and propose the rating to a rating committee.

Analysis
5
Notification

Rating Committee

The committee reviews the lead analyst’s rating recommendation then votes on the credit rating.

Rating Committee
6
Publication

Notification

We generally provide the issuer with a pre-publication rationale for its credit rating for fact-checking and accuracy purposes.

Notification
7
Surveillance

Publication

We typically publish a press release announcing the public rating and post the rating on www.standardandpoors.com.

Publication
8

Surveillance of Rated Issuers & Issues