Investors periodically receive information from news sources that a rating agency is upgrading or downgrading the rating of an issuer, with revisions either up or down. The market reaction to this kind of news background can be quite violent. Therefore, every trader must understand what they are rating agencies and what they do. In this article we will tell you about both.

The meaning of the work of rating agencies

Rating agencies, as the name suggests, establish credit ratings that characterize the level of credit risk (solvency) of both individual debt issues and issuers - individual companies. municipalities and even countries. These ratings are assigned by highly qualified analysts of rating agencies on the basis of certain mathematical models or analytical studies, which involve a certain proportion of subjective judgments based on the experience of the analysts themselves.

For issuers: having a higher rating (or having one in principle) makes it easier to enter the capital market and allows you to attract funds at a lower interest rate.
. For: ratings help to navigate the acceptability/unacceptability of a particular issuer/issue for investment cash This factor is very relevant if we take into account country specifics for international investors.
. For investment banks organizing the issue of debt securities of the issuer: the presence of a rating makes it possible to implement the issue at the least cost. Moreover, many institutional investors (for example, funds) make their investments in accordance with investment declarations, which often require a rating from certain agencies.

Rating agencies are commercial organizations that receive their profit both from investors - for providing them with up-to-date information regarding the credit risk of a particular issuer / issue, and from issuers securities to which these ratings are assigned. Moreover, ratings are not just assigned, but are also subject to revision, as a result of which the “status” of the rated may change, and this, in turn, requires the agency constant monitoring behind the issuer. It is worth noting that rating agencies (usually on a paid basis) publish for their subscribers various analytical reviews on markets of interest to investors - for example, on the credit ratings of bond issuers.

"Big Three" rating agencies

For a rating agency to be successful, investors must trust it. This requires a certain reputation, which has been accumulated over decades. Therefore, there are not many truly global and successful rating agencies in the world. The best of them form the so-called “ big three”, which includes S&P Global Ratings, Moody’s Investor Services and Fitch Ratings.

The history of rating agencies began with Henry Poore (founder of Standard and Poor's), publishing his research on this topic in 1860. On at the moment S&P Global Ratings operates in 28 countries. John Moody (founder of Moody's) presented his research to the world only in 1900. current moment Moody's assigns its ratings to 110 sovereign states, 11,000 corporate issuers, and 102,000 securities issues. The Fitch Ratings agency begins its history in 1913 - with the formation of the Fitch Publishing Company by John Fitch. After which the agency was formed until current state through a series of mergers. Moreover, historically, Fitch also has European roots, hence its primary specialization in Europe and Asia (compared to S&P and Moody’s).

Russia also has rating agencies - RIA Rating, Rus-Rating, National Rating Agency (NRA), AK&M PA, but the world's largest funds are less focused on the information received from these agencies. Nevertheless, the ratings of these agencies may be more adequate and specialized for Russian reality.

Rating scales

Rating agencies assign both long-term and short-term ratings. Traditionally, all ratings are somewhat similar to each other and are divided into only two categories: investment and speculative. In addition, ratings can be with a positive, negative or stable outlook. For the S&P agency, the investment category includes ratings from AAA to BBB-, and the speculative category includes ratings from BB+ to D. Moreover, the gradation of ratings from AA to CCC can be expanded by the symbols + and - with additional characteristics elements.

For Moody's, investment grade includes ratings from Aaa to Baa3, and speculative grade - from Ba1 to C.

For Fitch, investment grade includes ratings from AAA to BBB, and speculative grade - from BB to D

Conclusion

“One American journalist once said that if earlier it was necessary to introduce tanks, now it is enough to lower the state’s rating, and this will be almost the same blow to the country” (Pavel Samiev, deputy general director rating agency "Expert RA")

What are rating agencies?

Rating agencies are commercial organizations that evaluate the solvency, debt obligations, and other important financial indicators of issuers. They present their assessment as credit ratings, which are assigned to organizations, regions, countries depending on their creditworthiness. The main purpose of such ratings is to provide an assessment of the likelihood to potential investors/creditors that the issuer will/will not fulfill its obligations.

The most famous and authoritative rating agencies in the world are American agencies Standard & Poor's, Moody's, and Fitch Ratings. Their history goes back about 100 years. Russian ratings begin their history in the 90s and the largest are the Expert RA Rating Agency and NRA (National Rating Agency).

Agency credit ratings have a similar concept, but different designations and calculation methods. Basically the ratings are indicated in Latin letters in decreasing order of reliability level from A to C (for some agencies to D).

Rating agencies are accredited by the Ministry of Finance of the Russian Federation. In total, there are 8 officially accredited agencies in Russia, 3 foreign: Standard and Poor's, Moody's, and Fitch Ratings, one joint: "RA MOODS INTERFAX" and 4 Russian agencies: "National Rating Agency", "Expert RA", " RA "Analysis, Consulting and Marketing", "Rus-Rating".

The advantage of foreign agencies is their impartiality and greater authority. The advantage of Russian agencies is their efficiency; seeing the situation from the inside, they can react faster and change the rating Russian companies. Western agencies typically look at IFRS, which are published quarterly/annually, while Russian agencies look at some issuers' reports on a monthly basis.

How can a private investor use information from rating agencies?

It should be remembered that credit ratings are not a direct recommendation for the purchase or sale of securities. They reflect only one of the aspects necessary to make an investment decision, namely, creditworthiness. Companies with a maximum AAA rating may have problems and may default. However, if among companies with an AAA rating there will be only a few such cases, then companies with pre-default ratings will have hundreds and thousands of such cases of bankruptcy.

Rating agencies continue to have a major influence on financial markets. For example, Standard and Poor's decision to downgrade the US credit rating in August 2011 from the maximum AAA to AA+ caused panic on stock exchanges and a collapse in quotes around the world.

Follow the latest news from leading rating agencies on our website.

When compiling ratings of banks, financial companies, and business structures, we often rely on data published by reputable and respected rating agencies. Their assessments are listened to all over the world; decisions in business and politics are made on their basis.
Today we present Top 10 most authoritative rating agencies, both in the international and Russian arena.

This Russian rating agency was created in 2000 and was accredited by the Russian Ministry of Finance. Specializes in assigning ratings to banks, non-bank credit institutions, insurance companies and non-state pension funds, as well as management and investment companies.

9. A.M. Best Company, Inc.

It is an international rating agency headquartered in Oldwick, New Jersey, USA. The main specialization is insurance companies. The specificity of the assessment is to determine the financial stability rating, which determines the extent to which the insurer is able to fulfill its obligations to policyholders. The formula for calculating the rating is the property of the company

8. Dominion Bond Rating Service (DBRS)

The credit rating agency was founded in Canada in 1976. Today it is the largest Canadian RA. The existing scale of short-term debt ratings shows how great the risk is that the borrower will not be able to timely fulfill its own obligations on short-term debts.

7. Moody`s Interfax Rating Agency

The leading rating agency in Russia, where they are assigned on a national scale, which reflects the agency’s opinion on the creditworthiness of the issuer and its debt obligations on the national market. Russian financial institutions, regional and municipal administrations, as well as companies in the non-financial sector resort to the services of Moody`s Interfax Rating Agency.

6. RA AK&M

This Russian rating agency, accredited by the Russian Ministry of Finance, was created in 1994. In addition to company ratings, the RA assesses the creditworthiness of constituent entities of the Russian Federation and municipalities. AK&M also compiles ratings of leading enterprises of the Russian Federation.

5. "Expert RA"

One of the most authoritative rating agencies in Russia. It is the information and research division of the Expert group of companies. Founded in 1997 The agency compiles credit ratings of private companies, credit ratings of regions and evaluates their investment attractiveness.

4. Morningstar (NASDAQ: MORN)

American RA specializes in collecting and analyzing information on investment funds. Consumers are provided with databases, training courses, reviews and software. The fund rating system is based on assigning stars (from 1 to 5), which allows summing up data on the fund's stability in terms of the ratio of profitability and risk.

3. Standard & Poor's (S&P)

Research agency financial market. The company is one of the three most influential international RAs. The American stock index S&P 500 and the Australian S&P 200 were created by this company. The agency evaluates both issuers and individual debt obligations. The Standard & Poor’s international scale allows you to compare the reliability of issuers and obligations of different countries.

2.Moody's

One of the most authoritative international ones in the world. RA is a subsidiary of Moody's Corporation. The agency is engaged in research and risk analysis, assigning credit ratings. Moody's has more than 4,500 employees in 26 countries.

1. Fitch Ratings

This international diversified corporation has gained fame precisely as a rating agency. Back in 1924, the Fitch agency introduced a rating scale from “AAA” to “D”. Today, the company's core mission is to provide independent and future-oriented credit assessments, analytics and research to global markets.

Credit ratings assigned to banks by international rating agencies allow us to judge their creditworthiness, financial stability, reliability and reputation. For ordinary consumers of financial services, these indicators will probably say little, but for credit institutions themselves, this assessment is very important; trust in the financial institution, the ability to attract borrowed funds and the conditions for obtaining loans depend on it. In general, investors will make their decisions based on ratings. And, ultimately, these financial decisions will determine the price at which banks will lend to their clients.

Among the most authoritative international rating agencies, three should be highlighted: largest companies: Moody’s Investors Service (Moody’s), Fitch Ratings and Standard & Poor’s (S&P). Each of them assigns its own ratings to banks on a national and international scale: long-term and short-term credit ratings, ratings of bank deposits, ratings of financial stability of banks, etc.

Each agency has its own rating scale, which has letter designations, usually from "AAA" to "D". In addition, the modifiers “+” and “-” or the numbers 1, 2 and 3 can be added to the letter categories if the bank falls into intermediate values. To show possible changes in the rating in the future, the agency's forecast is used. It can be: “Stable” - this means that a change in the rating is not expected in the next couple of years; “Developing” – the rating can either increase or decrease; “Negative” – the rating may be downgraded; “Positive” – a rating increase is possible.

Moody's long-term credit rating	Long-term credit rating Fitch Ratings	Long-term credit rating S&P	Symbol designation
Aaa	AAA	AAA	Debt obligations exclusively high quality, subject to minimal credit risk
Aa	A.A.	A.A.	The ability to pay off debt obligations is very high
A	A	A	Creditworthiness level is high
Baa	BBB	BBB	The level of creditworthiness is satisfactory
Ba	BB	BB	Insufficient level of creditworthiness, unfavorable economic conditions may affect solvency
B	B	B	Debt obligations are subject to high credit risk
Caa	CCC	CCC	Risk of default, debt payments depend on favorable economic conditions
Ca	CC	CC	Serious difficulties with debt payments, close to default.
C	C	C	Debt payments continue, but default is inevitable
-	-	SD	Default on certain obligations
D	D	D	Default declared

Rating assignment is a paid service. After concluding an agreement with the selected rating agency, the bank must provide the company's analysts with all the necessary information about its activities. After this, a rating meeting is organized with representatives of the management of the credit institution. Based on an assessment of all received data, the rating committee makes a decision on assigning a rating. If the client does not agree, he can appeal, providing additional information. Please note that the bank makes the decision to publish the rating at its own discretion.

Taking into account the fact that rating agencies have different approaches to assessing the factors that determine a bank’s position and have their own specifics, many credit organizations turn to several rating agencies at once. After all, the bank’s reputation in the domestic and international financial markets largely depends on this.

Rating agency- a commercial organization engaged in assessing the solvency of issuers, debt obligations, the quality of corporate governance, the quality of asset management, etc. The most famous product of rating agencies is the assessment of solvency - credit rating.

It reflects the risk of non-payment on a debt obligation and affects the interest rate, cost and profitability of debt obligations. Moreover, a higher rating corresponds to a lower risk of non-payment.

Solvency- the ability of an economic entity to timely fulfill monetary obligations stipulated by law or contract, at the expense of the monetary resources at its disposal.

Insolvency- the inability of a business entity to fulfill, after the established deadline for payment, monetary obligations to the creditor. Insolvency can lead to bankruptcy.

The most famous world rating agencies

Russian rating agencies

"Expert RA".

Moody's Interfax Rating Agency

(a joint venture between Moody’s Investors Service and Interfax)

Leading world RAs:

Fitch Ratings is an international corporation known primarily as a rating agency.

Our mission is to provide independent and forward-looking credit assessments, research and data to the global credit markets.

Fitch is a group that includes:

• Fitch Solutions is the distribution arm of Fitch Ratings products and services

  Algorithmics is a global leader in corporate risk management solutions

  FitchTraining specializes in credit and corporate finance training.

Owners and management

The Fitch Group is majority owned by Fimalac S.A. (headquartered in Paris

Story

Fitch Ratings was founded in New York by John Knowles Fitch on December 24, 1913. as Fitch Publishing Company.

In April 2000, Fitch acquired Duff & Phelps Credit Rating Co. (Chicago headquarters). Later that year, Fitch bought Thomson BankWatch.

In October 2006, Fitch Ratings founded Derivative Fitch, the first dedicated credit rating agency to provide ratings, research and assessments to the credit derivatives market to meet the needs of the credit derivatives market.

Http://www.Fitchratings.Ru/

Moody's(rus. Moody's) - international rating agency; full name - Moody's Investors Service.

Moody's is a subsidiary of Moody's Corporation. Engaged in credit ratings, research and risk analysis.

The agency employs more than 4,500 experts in 26 countries.

Since the first bond rating definitions were developed in 1909, the number of Moody's ratings has grown significantly. Today Moody's operates 32 systems, and their number is growing every year.

Moody’s is able to fully satisfy the needs of its clients from Russia and the CIS countries due to its experience of working at the global level and at the same time knowledge of the markets of Russia and the CIS countries.

The team consists of highly qualified and experienced specialists who perform their work at the highest professional level.

Moody's assigns ratings to the debt obligations of banks, corporations, insurance companies, trust funds, regional and local governments, states, and international entities. Moody's also assigns structured finance ratings.

With international capital markets more dependent on credit ratings than ever before, Moody's ratings provide significant benefits and opportunities for both issuers and investors.

IN In Russia and the CIS, Moody's agency is represented by the Russian branch of Moody's Investors Service Ltd., Russian Branch, which assigns Moody's ratings on a global scale, by Moody's Eastern Europe (MEE), as well as by the Rating Agency " Moody's Interfax Rating Agency - MIRA), which assigns credit ratings on a national scale.

M The majority shareholder of RAMI is Moody's agency, and the minority shareholder is Interfax Information Services Group.

TO Moody's Corporation (NYSE: MCO), the parent company of Moody's Credit Ratings Agency, which provides credit ratings and research covering debt instruments and securities, Moody's Analytics, which offers advanced software, advisory services and research for credit and economic analysis and financial risk management Moody's is a corporation that reported revenue of $2.3 billion in 2011, employs approximately 6,100 people worldwide and maintains a presence in 28 countries.

http :// www . moodys . com / pages / default _ ee . aspx