Credit Rating Agency Definitions

Credit Rating Agency Definitions

Credit ratings can be a useful way to compare the credit risk associated with different companies and their securities. Credit ratings are assigned by independent companies known as ratings agencies, such as Standard & Poor’s Rating Services, a division of McGraw-Hill International UK Limited (S&P’s) and Moody’s Investors Service Limited (Moody’s).
Credit ratings are a forward looking opinion about credit risk and the issuer’s ability to meet its financial obligation in full and on time. It must be highlighted that both internal and external factors can alter the rating with no notice. Credit agencies can assess both the company and the companies’ investment products (e.g. Retail Bond). It should be noted that the company itself pays the ratings agency to provide them with a rating. There are a number of registered credit rating agencies with S&P’s and Moody’s currently being the main ones, with both their current credit rating definitions shown below.

S&P’s Long-Term Issue Credit Ratings*

Category

Definition

AAA

An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

AA

An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A

An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB

An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB; B; CCC; CC; and C

Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

BB

An obligation rated 'BB' is less vulnerable to non-payment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B

An obligation rated 'B' is more vulnerable to non-payment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC

An obligation rated 'CCC' is currently vulnerable to non-payment, and is dependent upon favourable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC

An obligation rated 'CC' is currently highly vulnerable to non-payment.

C

A 'C' rating is assigned to obligations that are currently highly vulnerable to non-payment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the 'C' rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument's terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.

D

An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor's believes that such payments will be made within five business days, irrespective of any grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligation's rating is lowered to 'D' upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.

NR

This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy.

*The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

 Moody’s Global Long-Term Rating Scale

Category

Definition

Aaa

Obligation rated Aaa are judged to be the highest quality, subject to the lowest level of credit risk.

Aa

An obligation rated Aa are judged to be of high quality and are subject to very low credit risk.

A

Obligations rated A are judged to be upper-medium and are subject to low credit risk.

Baa

Obligation rated Baa are judged medium grade and subject to moderate credit risk and as such may possess certain speculative characteristics.

Ba

Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.

B

Obligation rated B are considered speculative and are subject to high credit risk.

Caa

Obligation rated Caa are judged to be speculative of poor standing are subject to very high credit risk.

Ca

Obligations rated Ca are highly speculative and are likely in, or very near, default with some prospect of recovery of principle and interest.

C

Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principle and interest.

Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aaa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates amid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category


A summary conversion table for S&P’s and Moody’s:

Standard & Poor’s (S&P’s)

Moody’s

AAA

Aaa

AA+

Aa1

AA

Aa2

AA-

Aa3

A+

A1

A

A2

A-

A3

BBB+

Baa1

BBB

Baa2

BBB-

Baa3

BB+

Ba1

BB

Ba2

BB-

Ba3

B+

B1

B

B2

B-

B3

The ratings of these financial instruments on our website and what those mean are set and made available to investors by rating agencies. These form part of the offer information from the Issuer. These ratings are made available through Barclays Stockbrokers website for information only and Barclays Stockbrokers accepts no liability for the appropriateness of those ratings.

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