Credit Rating Agencies
Credit rating agencies are responsible for giving credit ratings to debt instruments that are used by companies and corporations that are in need of credit. These ratings aim to measure the likelihood that the corporation can meet it’s debt obligations, they are not meant to measure the overall health of a company (although the two are usually linked). These agencies do not deal with individual credit ratings, the term for those who do is credit bureaus (US) or credit reference agencies (UK).
Three Major Credit Rating Agencies
There are three main credit rating agencies; Standard & Poor’s, Fitch and Moody’s these dominate the market controlling approximately 90-95% of the market share. The other 5-10% is controlled by the two smaller companies; Dun & Bradstreet (D&B) and A.M Best (who specializes in the insurance market). These agencies assign companies with a letter ranging from A (most likely to meet their debt obligations) to C (least likely to meet their debt obligations). A table with these ratings along with what these ratings mean is below:
Table Of Credit Rating Agencies Ratings And What They Mean
| Moody’s | Standard & Poor’s (S&P) | Fitch | Credit Worthiness/What This Means |
|---|---|---|---|
| Aaa | AAA | AAA | This corporation has an extremely strong capacity to meet it’s debt & financial commitments. There are currently four companies which are AAA according to S&P, they are; Automatic Data Processing (NYSE:ADP), Johnson & Johnson (NYSE:JNJ), Microsoft (NASDAQ:MSFT) and ExxonMobil (NYSE:XOM). Source. |
| Aa1 | AA+ | AA+ | This corporation has a very strong capacity to meet it’s debt and financial commitments. The difference between this an a triple A rating are small. |
| Aa2 | AA | AA | |
| Aa3 | AA- | AA- | |
| A1 | A+ | A+ | This corporation has a strong capacity to meet it’s debt and financial commitments but it more susceptible to big changes in economic conditions and other adverse situations. |
| A2 | A | A | |
| A3 | A- | A- | |
| Baa1 | BBB+ | BBB+ | This corporation has an adequate capacity to meet it’s debt and financial commitments but changing conditions and circumstances are likely to lead to a weaken capacity to meet these commitments. |
| Baa2 | BBB | BBB | |
| Baa3 | BBB- | BBB- | |
| Ba1 | BB+ | BB+ | This corporation faces major ongoing uncertainties and exposure to adverse economic financial or business conditions could lead to an inability to meet it’s debt and financial commitments. . None the less this corporation is less vulnerable at least in the near term than other lower rated corporations. |
| Ba2 | BB | BB | |
| Ba3 | BB- | BB- | |
| B1 | B+ | B+ | This corporation currently has the capacity to meet it’s debt and financial commitments but adverse economic, financial or business conditions could lead to an inability to meet these commitments. It is more vulnerable than corporations rated BB or above. |
| B2 | B | B | |
| B3 | B- | B- | |
| Caa | CCC | CCC | This corporation is dependent on favourable economic, financial and business conditions to be able to meet it’s debt and financial commitments, it’s currently vulnerable. |
| Ca | CC | C | This corporation is currently highly vulnerable and if significant favourable economic financial business conditions do not occur it will be unable to meet it’s debt and financial commitments. |
| C | C | This corporation is highly likely to provide non-paymentfor it’s debt and financial obligations. This is often used when a bankruptcy petition has been filed. | |
| C | D | D | This corporation has failed to pay one or more of it’s debt or financial obligations when it was due. |
| e, p | pr | Expected | Preliminary ratings may be assigned to obligations pending receipt of final documentation and legal opinions. The final rating may differ from the preliminary rating. |
| WR | Rating withdrawn for reasons including: debt maturity, calls, puts, conversions, etc., or business reasons (e.g. change in the size of a debt issue), or the issuer defaults. | ||
| unsolicited | unsolicited | This rating was initiated by the ratings agency and not requested by the issuer. | |
| SD | RD | This rating is assigned when the agency believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. | |
| NR | NR | NR | No rating has been requested, or there is insufficient information on which to base a rating. |
You can read more about how these agencies assign their credit ratings here. Click one of the links below to read more information about the individual credit rating agencies: