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What Is Credit Rating ?An assessment of the creditworthiness of individuals andcorporations. It is based upon thehistory of borrowing and repayment,as well as the availability of assetsand extent of liabilities.
Credit Rating AgenciesA Credit rating agency (CRA) is a companythat assigns Credit ratings for issuers of certaintypes of debt obligations as well as the debtinstruments themselves. In some cases, theservicers of the underlying debt are also givenratings.
The General Phenomenon The relation between interest and period of 12I 10NT 8E 6RE 4S 2T 0 10 Years 20 Years 30 Years 40 years PERIOD
The Relation Between Interest And The Rating Of The Bond 12I 10N 8TE 6RE 4SR 2 0 strongest strong weak weakest RATING OF BONDS
Uses of Credit Ratings
By The Bond Issuersan independent verification of their own credit-worthiness.Issuers also use credit ratings in certain structured finance transactions.Advantage of credit rating advisory services.
By The Govt. RegulatorsUsed for several regulatory purposes .Role in capital formation too
By The Structured Finance determines the interest rate or price ascribed to a particular tranche, based on the quality of loans or quality of assets contained within that grouping.help them determine how to structure the individual tranches so that each receives a desired credit rating
List Of Credit Rating Agencies Credit Rating ONICRA Credit Rating Information Services of Agency of India Ltd. India Limited (CRISIL) In India :-Investment Information Credit Analysis & and Credit Rating Research Limited Agency of India (ICRA) (CARE)
Moody’s Investor’s service Standard A.M. Best and Company, Ipoors(S&P nc. ) Globally TheStreet.cFitch ratings om ltd. Ratings, Inc . Egan-Jones Rating Company
Types & Meaning Of The RatingsAAA: An obligor rated AAA has extremely strongcapacity to meet its financial commitments. AAA is thehighestAA: An obligor rated AA has very strong capacity tomeet its financial commitments. It differs from thehighest-rated obligors only to a small degree.A: An obligor rated A has strong capacity to meet its financialcommitments but is somewhat more susceptible to the adverseeffects of changes in circumstances and economic conditions thanobligors in higher-rated categories
BBB : adverse economic conditions or changingcircumstances are more likely to lead to a weakenedcapacity of the obligor to meet its financialcommitmentsBB: An obligor rated BB is less vulnerable in thenear term than other lower-rated obligors. However, itfaces major ongoing uncertainties.B:. Adverse business, financial, or economic conditionswill likely impair the obligors capacity or willingness tomeet its financial commitments.
An obligor rated CCC is currently vulnerable, and is dependent uponfavorable business, financial, and economic conditions to meet its financialcommitments.R: An obligor rated R is under regulatory supervision owing to itsfinancial condition. During the pendency of the regulatorysupervision, the regulators may have the power to favor one class ofobligations over othersSD and D: An obligor rated SD (selective default) or D has failed topay one or more of its financial obligations (rated or unrated) when itcame due.A D rating is assigned when It is believed that the default will be ageneral default and that the obligor will fail to pay all or substantially allof its obligations as they come due.
Credit Rating Of DifferentCountries By Standard And Poors
Different Credit ratings By Different AgenciesMoodys Standard & Poors Fitch IBCA Gilt edged. If everything that can go Aaa AAA AAA wrong does go wrong, they can still service debt. Very high quality by all Aa AA AA standards. Investment grade; good A A A quality. Lowest investment- grade rating; Baa BBB BBB satisfactory, but needs to be monitored.
Somewhat speculative;Ba BB BB low grade.B B B Very speculative. Even more speculative.Caa CCC CCC Substantial risk. Wildly speculative.Ca CC CC May be in default.C C C In default. Junk.
The Process Followed By The RatersRequest received for rating Pre-Analysis and Document Collection Assignment finalized and detailed questionnaire prepared Customer and referral feedback collected
In-depth Analysis of BusinessUnit Site Visit scheduled and Data Collected Draft Report and Rating proposal Report evaluation by Rating committee Final evaluation and Rating given
Effect Of Credit Ratings on Bond EvaluationInvestors generally rely on bond ratingsRegular change in the rating of long termBonds Rating effecting the price of bonds
Effect of credit rating on countries Downgrade of united states
Credit Rating Agencies Do Not Downgrade Companies Promptly EnoughLarge Corporate Rating Agencies Have Been Criticized For Having Too Familiar A Relationship With Company Management CRA’s Have Also Been Accused Of Engaging In Heavy-handed "Blackmail" Tactics In Order To Solicit Business From New Clients, And Lowering Ratings For Those Firms
Agencies are sometimes accused of being oligopolists,Credit Rating Agencies have made errors of judgment in rating structured products