Standard & Poor's (S&P) is a financial services company that is well-known for its credit ratings, research, and analysis of financial markets. S&P provides credit ratings for a wide range of entities, including corporations, governments, and financial institutions. The credit ratings assigned by S&P are meant to assess the creditworthiness and risk associated with the debt obligations of these entities. =
Credit rating scale: S&P uses a letter-grade scale to assign credit ratings. The highest creditworthy entities receive the highest grades, while those with higher credit risk receive lower grades. The general scale is as follows:
Investment Grade
AAA: Extremely strong capacity to meet financial commitments.
AA: Very strong capacity to meet financial commitments.
A: Strong capacity to meet financial commitments.
BBB: Adequate capacity to meet financial commitments.
Non-Investment Grade (Speculative-Grade)
BB: Less vulnerable in the near term but faces major uncertainties.
B: More vulnerable than BB-rated obligors but currently has the capacity to meet financial commitments.
CCC: Currently vulnerable and dependent on favorable conditions.
CC: Currently highly vulnerable.
C: Highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations.
R: Under regulatory supervision owing to financial condition.
SD: Selectively defaulted on some obligations.
D: Defaulted on obligations, and S&P believes that it will generally default on most or all obligations.
NR: Not rated.
Investment-grade vs speculative-grade: Ratings from AAA to BBB are considered investment-grade, indicating a lower risk of default. Ratings below BBB are classified as speculative-grade or junk bonds, indicating a higher risk of default.
Credit analysis factors: S&P considers various factors when assigning credit ratings, including the financial health of the entity, its ability to meet debt obligations, industry and economic conditions, and management quality.
Issuer credit rating vs issue credit rating: S&P provides both issuer credit ratings, which assess the overall creditworthiness of an entity, and issue credit ratings, which assess the credit risk of specific debt securities issued by that entity.
Credit watch: S&P may place an entity or issue on Credit Watch if there are events or developments that could impact its creditworthiness. This indicates that there is an increased likelihood of a rating change.
Global scale: S&P's credit ratings are globally recognised and used by investors, issuers, and governments as a benchmark for assessing credit risk.
Independent analysis: S&P prides itself on providing independent and objective credit opinions. Analysts at S&P assess a wide range of information before assigning a credit rating.
It is important for investors, creditors, and other financial market participants to consider credit ratings as one of several factors when making investment decisions. Ratings are subject to change based on economic conditions, financial performance, and other relevant factors. Additionally, credit ratings are not foolproof, and events may occur that lead to unexpected changes in an entity's creditworthiness.
