Credit Rating Agencies

Sovereign Ratings The first sovereign ratings were issued in Sovereign ratings became widespread in the 20s and 30s and again from the 70s onward. Ratings are used in regulation: the European Central Bank uses ratings to measure the quality of collateral it will accept on certain loans. In crises, the Credit Rating Agencies (CRAs) attract a lot of criticism.

The Meaning of the Ratings The ratings assess default probability. Moody’s also assesses recovery rates, while Fitch and S&P have separate scales for recovery. Investment grade, speculative grade and default. Review for possible rating change, usually signalling potential upward or downward change. “Outlooks” relate to the medium term.

Source: S&P 2011b, p. 10 Letter Ratings

The Rating Process Since the 1990s issuers have paid for their ratings and are involved in the rating process. Analysts tend to have MAs in Economics from American, Canadian or British universities. The “Big Three” use very similar criteria in assigning ratings.

Rating Process Source: S&P 2011b, p. 8

Source S&P 2011a, p. 7 Main Sovereign Rating Factors

Assessing Political Scores

Source S&P 2011a pp