Credit rating agencies

CREDIT RATING

AGENCIES

PRESENTED BY•Karishma Sabhani•Rahul Chawla

What Is Credit Rating ?

An assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. 

Credit Rating Agencies

A Credit rating agency (CRA) is a company that assigns Credit ratings  for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings.

10 Years 20 Years 30 Years 40 years0

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12The relation between interest and period of

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The General Phenomenon

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12The Relation Between Interest And The Rating Of The Bond

RATING OF BONDS

INTERESR

Uses of Credit

Ratings

By The Bond Issuers

an 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. Regulators

Used 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

ONICRA Credit Rating Agency of India Ltd.

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Credit Analysis & Research Limited (CARE)

In India :

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Globally

Moody’s Investor’s service

Standard and

poor's(S&P)

Fitch ratings

ltd.

Egan-Jones Rating

Company

TheStreet.com

Ratings, Inc.

A.M. Best Company

, Inc.

AAA: An obligor rated 'AAA' has extremely strong capacity to meet its financial commitments. 'AAA' is the highestAA: An obligor rated 'AA' has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.A: An obligor rated 'A' has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories

Types & Meaning Of The Ratings

BBB : adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments

BB: An obligor rated 'BB' is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties.

B:. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments.

An obligor rated 'CCC' is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.

R: An obligor rated 'R' is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others

SD and D: An obligor rated 'SD' (selective default) or 'D' has failed to pay one or more of its financial obligations (rated or unrated) when it came due.

A 'D' rating is assigned when It is believed that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due.

Credit Rating Of Different

Countries By Standard And

Poor's

Different Credit ratings By Different Agencies

Moody's Standard & Poor's Fitch IBCA

Aaa AAA AAA

Gilt edged. If everything that can go wrong does go wrong, they can still service debt.

Aa AA AA Very high quality by all standards.

A A A Investment grade; good quality.

Baa BBB BBBLowest investment-grade rating; satisfactory, but needs to be monitored.

Ba BB BB Somewhat speculative; low grade.

B B B Very speculative.

Caa CCC CCC Even more speculative. Substantial risk.

Ca CC CC Wildly speculative. May be in default.

C C C In default. Junk.

The Process Followed By The RatersA

ssignment finalized and detailed questionnaire prepared

Customer and referral

feedback collected

Site Visit scheduled and Data Collected

Draft Report and Rating proposal

Report evaluation byRating committee

Final evaluation and

Rating given

Methodologies

Effect Of Credit Ratings on Bond

Evaluation Investors generally rely on bond ratingsRegular change in the rating of long term BondsRating

effecting the price of bonds

Effect of credit rating on countries

Downgrade

of unite

d state

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Credit Rating Agencies Do Not Downgrade Companies Promptly Enough

Large 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

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