Question

Define credit rating of a company and of long-term securities (bonds, shares etc.)

A. List down credit rating agencies in US.

B. Pick one credit crediting agency and explain in detail the services offered by that agency.

C. Explain criteria for assigning credit rating to the companies.

Answer 1

A corporate credit rating is a numerical or quantified assessment of a company's creditworthiness, which shows investors the likelihood of a company defaulting on its debt obligations or outstanding bonds. whereas credit rating of long term securities predict the borrower's likelihood of defaulting at any given time in the extended future.

Credit rating agencies typically assign letter grades to indicate ratings. Standard & Poor's, for instance, has a credit rating scale ranging from AAA (excellent) to C and D. A debt instrument with a rating below BB is considered to be a speculative grade or a junk bond, which means it is more likely to default on loans

A.Moody’s and S&P are located in the United States, and they dominate 80% of the international market. Fitch is located in the United States and London and controls approximately 15% of the global market.

B. Moody's Corporation is an American financial services company that acts as the holding company for Moody's Investors Service and Moody's Analytics.

(i)Moody's Investors Service provides investors with credit ratings, risk analysis, and research for stocks, bonds, and government entities.

(ii)Moody's Analytics develops software and tools to help capital markets with risk management, credit analysis, and economic research.

C. Criteria generally includes business risk profiles, their financial risk profiles, and other factors that may affect business of the corporates.

Business risk profile comprises the risk and return potential for a company in the markets in which it participates.

Financial risk profile is the outcome of decisions that management makes in the context of its business risk profile and its financial risk tolerances.