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Industry Research. Credit Rating Agency. Group 1 Chris Mei Yu Steven John. What is rating agency?. Independence assessment of a creditworthiness of a bond The credit rating measures probability of timely repayment payment and interest of a bond
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Industry Research Credit Rating Agency Group 1 Chris Mei Yu Steven John
What is rating agency? • Independence assessment of a creditworthiness of a bond • The credit rating measures probability of timely repayment payment and interest of a bond • AAA --- The highest investment grade • BBB --- The lowest investment grade • Below BBB--- Junk bond • E.g. Moody, Standard & Poor and Fitch rating
Why credit rating agency exist? • Reduce asymmetry between lenders and borrowers • Enhance transparency and efficiency in the fixed-income securities market
How are bond rated? • Application form to rating agency by issuer or its agency either via telephone call or in writing • Rating issuer's debt instruments for decades • Doing several weeks before the issuance of the bonds • Providing the documentations • Present the credit worthiness agency at rating agency's or issuer's office • The rating is released to the issuer, a wire service and a publication of full credit report
Elements determining the rating • Economic Factors • Debt/Issue Structure • Financial Factors • Management/ Structure Factors • Investment Policy and Practice • Willingness to pay
How credit rating agency makes money • Rating fees from corporations it rated • Consultant fees for credit risk management service
NYSE: MCO Revenue in 2002: $1.0billion No. of employees ≈ 2100 Moody’s Corporation
Moody’s credit rating area • Corporate Finance • Banking • Sovereign (Nations) • Structured Finance • US Public Finance • Funds
Corporate Finance • Investment Grading • Leveraged Finance • Syndicated Loan • Project Finance
Banking • Long-term deposit rating • Short-term deposit rating • Financial strength rating
Sovereign • Rating for foreign-currency bond • Rating for foreign-currency deposit
US Public Finance • Rating on municipal bond