RATING SYSTEMS OF THE THREE LEADING RATING AGENCIES

THE RATING SYSTEMS OF THE THREE LEADING RATING AGENCIES

Credit ratings are used by investors as an indicator of the probability of repayment of their investment in a bond. An investment-grade rating denotes a relatively low likelihood of default, while speculative or non-investment grade categories indicate a higher probability of default or that a default has occurred in the past. Many fiduciary institutions such as banks are required by law to invest in securities that are at a minimum rated as investment grade.

The following table provides a comparison of the rating systems of the three leading agencies. Ratings are issued on a scale from the best to the lowest quality.

Credit Quality Ratings for Long Term Issues And What They Mean

Moody's	Standard & Poor's	Fitch	What the Ratings Mean
Aaa	AAA	AAA	The best possible rating or gilt edged. Even if circumstances change, the issuer's capacity for repayment is highly unlikely to be affected by foreseeable events.
Aa	AA	AA	Very high quality. Capacity for repayment is not significantly vulnerable to foreseeable events.
A	A	A	Investment grade, considered a reliable investment. Capacity for timely repayment is strong but more likely to be affected by changes in economic/political circumstances.
Baa	BB	BB	Lowest investment grade rating. Needs to be monitored even though considered adequate in terms of capacity for timely repayment. A negative change of environment may affect capacity for repayment.
Ba	BB	BB	Considered speculative with a possibility of developing credit risks.
B	B	B	Considered very speculative with significant credit risks and limited margin of safety. Current debt obligations are being met but could be hindered if circumstances change.
Caa	CCC	CCC	Considered highly speculative with substantial credit risks.
Ca	CC	CC	May be in default or 'wildly' speculative.
C	C	C	Considered junk. Is in default.
Con (Conditional)			Rating is conditional upon receiving or fulfilling additional information or requirements.
N/R (Not Rated)			The bonds are not rated, i.e., the issuer did not apply to any rating agency for a rating. Does not necessarily mean that the bond is of poor quality. But should be subject to careful scrutiny as most issuers who expect to get good ratings would apply for them.