Credit Rating Agency

A credit rating agency (CRA) is a company that assigns credit ratings for issuers of
certain types of debt obligations. In most cases, the issuers of securities are companies,
special purpose entities, state and local governments, non-profit organizations, or national
governments issuing debt-like securities (i.e., bonds) that can be traded on a secondary
market.

The largest commercial credit rating agencies (which tend to operate worldwide) are
Moody's, Standard and Poor's and Fitch Ratings

Credit rating is the evaluation of credit worthiness i.e. potential borrower’s ability &
willingness to pay the obligations as well net worth. It establishes the link between the
risk & rate of return.

Corporate credit ratings

The credit rating of a corporation is a financial indicator to potential investors of debt
securities such as bonds
Some of the credit rating symbols by Moody’s are
Aaa = Credit risk almost zero
Aa1 = Safe investment, low risk of failure
Baa1= Medium safe investment. Occurs often when economy has deteriorated. Problems
may arise
Ba1= Speculative investment. Occurs often in deteriorated circumstances, usually
problematic to predict future development
Caa = High likelihood of bankruptcy or other business interruption

Sovereign credit ratings

A sovereign credit rating is the credit rating of a sovereign entity, i.e. a country.

Uses

• To Investors
• To Issuers
• To Intermediaries
• To Regulators

Criticism

• Do not downgrade the companies promptly

• Close relationships with the companies which they rate
• Accused of being Oligopolists