Credit Rating

Credit ratings measure a borrower's creditworthiness and provide an international framework for comparing the credit quality of issuers and rated bonds. Rating agencies allocate three kinds of ratings: for issuers, for long-term debt and for short-term debt. Of these, issuer credit ratings are the most widely watched. They measure the creditworthiness of the borrower including its capacity and willingness to meet its financial obligations. A top rating means there is thought to be almost no risk of the borrower failing to pay interest and principal. Ratings are derived from an examination of a company or a government's past financial history, its current assets and liabilities and its future prospects. The higher the rating the less the borrower will need to pay for funds. The top credit rating issued by the main agencies, Standard & Poor's, Moody's and Fitch, is AAA or Aaa. This is reserved for a few sovereign and corporate issuers. The naming and designation of ratings varies according to each agency. They fall into two broad groups investment grade and speculative or junk grade.

See also: Credit Watch, Downgrade