Question

b) Describe any differences and similarities in rating criteria between Standard & Poor's (S&P), Moody's and Fitch group credit agencies

Answer 1

There are mainly three big credit rating agencies namely - Standard & Poor's (S&P), Moody's and Fitch group credit agencies. Standard & Poor's (S&P), and Moody's are based in the United States, and Fitch is dual-headquartered in London and New York City and is controlled by Hearst. These provide risk measures for several entities, and this helps investors to understand the credit risk of several borrowers. These ratings act as a benchmark for financial market regulations. Although these agencies adopt different scales of rating, there is equivalence across the scales which help in making the comparison

S&P ratings seeks to compute the only the default's probability. It does not consider the time that the issuer is likely to remain in default, and not the expected approach to resolve the default. It doesn’t worries on the value of recovery i.e. the money that investors end up with after the issuer has defaulted. On contrary, the Moody’s takes into consideration the default probability as well as the expected losses. Default probability is part of the total expected loss however it also considers what’s likely to happen if and when a default occurs. Fitch group credit agencies changes in ratings less in comparison to S&P and Moody's; and moreover its average rating is considerable higher compared to other two.