Credit ratings

Credit ratings—an introduction

Most debt securities in the international securities markets are issued with a credit rating from one or more credit rating agencies (CRAs).

A credit rating reflects a CRA's opinion, as at a specific date, of the creditworthiness of a particular company, security or obligation and particularly on the ability of that party to repay interest and principal when it is due. Where an investor is able to rely on the opinion of a CRA, it does not have to conduct its own comprehensive due diligence.

The role of CRAs is to provide an objective and analytical opinion on the risk of payment defaults by looking at various factors which help investors when deciding whether to invest in particular securities. Investors in capital markets are very sensitive to risk and some investors are prevented by their internal constitutional documents from investing in low-grade securities. Generally, the higher the investment risk, the greater the return (interest/coupon) the investor will seek.

Types of credit ratings

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