Moody's provides credit ratings that represent their opinion of an issuer's creditworthiness or likelihood of default. Ratings are determined through a committee process involving meetings with management, financial analysis, and consideration of public and confidential information. Ratings are assigned on long-term and short-term scales, ranging from Aaa (highest credit quality) to C (lowest rating, typically in default). Moody's monitors rated issuers on an ongoing basis and may change ratings over time based on new information. The purpose is to provide investors a simple system for comparing the future relative creditworthiness of different securities.

1. Credit Rating Agencies-
Moody’s Rating
by Asst Prof S. Rebello
Asst Prof S Rebello

2. What is a rating?
A rating is Moody’s opinion of the credit
quality of individual obligations or of an
issuer’s general creditworthiness
Asst Prof S Rebello

3. What a rating is not…
Ratings are not recommendations to buy
or sell, nor are they a guarantee that
default will not occur.
Asst Prof S Rebello

4. What types of securities does
Moody’s rate?
• bonds,
• debentures,
• asset-backed and mortgage-backed securities,
• convertible bonds,
• medium-term notes,
• securities, etc.
Asst Prof S Rebello

5. What do credit ratings measure?
• Moody’s credit ratings represent a ranking of creditworthiness, or
expected loss.
• While a rating summarizes the credit risk characteristics of an
obligor or obligation,
• it is not a statement as to which obligors or obligations will default in
the future.
• Rather, it is expected that lower rated entities and obligations will
default, on average, at a higher frequency than more highly rated
entities and obligations.
Asst Prof S Rebello

6. MOODY’S RATING PROCESS
Asst Prof S Rebello

7. Meeting with Management
• For a first-time rating, the initial rating meeting is generally held at a company's
head office location, and may last from a half day to a full day.
• The Moody's analyst will discuss the meeting agenda with the issuer in advance of
the meeting
• The rating meeting will generally focus on the following:
 Background and history of the company/entity
 Industry/sector trends
 National political and regulatory environment
 Management quality, experience, track record, and attitude toward risk-taking
 Management structure
 Basic operating and competitive position
 Corporate strategy
 Financial position and sources of liquidity, including:-
1. cash flow stability and predictability
2. and ability to service debt obligations
3. operating margin, and
4. a balance sheet analysis in terms of debt profile and maturity.
Asst Prof S Rebello

8. How does a Moody’s rating
committee work?
• Moody’s ratings are initially determined or subsequently changed through
committee.
• The lead analyst frames the discussion, including offering the rating
recommendation and its rationale.
• the committee includes a managing director or other designated individual
and the lead analyst.
• Factors affecting the size of the committee may include
– the size of the issuer,
– complexity of the security,
– geography, or whether a transaction of the type has ever been done before.
• The discussions of the committees are strictly confidential, and only
Moody’s analysts may serve on a committee.
• Develops a conclusion in committee on the appropriate rating
Asst Prof S Rebello

9. What sources of information do
analysts use?
• Publicly available data, e.g., annual reports.
• Prospectuses, offering circulars, offering memoranda, trust deeds, or
indentures of particular securities.
• Market data, e.g., stock price trends, trading volume, data on bond price
spreads.
• Economic data from industry groups, associations or bodies, such as the World
Bank.
• Data from agencies, such as central banks, ministries, or regulators.
• Books or articles from academic sources, financial journals, news reports.
• Discussions with expert sources in industry, government, or academia.
• Data that may come from meetings or conversations with the debt issuer. If
the data are confidential, Moody’s strictly observes this.
Asst Prof S Rebello

10. External Rating Appeals
• Before the credit rating decision is published the issuer
can make an appeal for new or additional information.
• When a issuer makes an request to Moody’s to
reconsider the decision based on the new decision or
additional information then such an appeal is known as
External Appeal.
• When an External Appeal is made there will be a delay
in publishing since Moody’s will assess the relevance
and significance of the new information
• The new or additional information should be supported
by the necessary documents.
Asst Prof S Rebello

11. On-going basis
• Monitors the security on an ongoing basis
to determine whether the rating should be
changed, and informs the marketplace of
Moody's actions.
• Moody's will meet with management at
least annually, or more frequently
• The Moody's analyst will maintain regular
contact with the issuer
Asst Prof S Rebello

12. Rating Process Timeline
• Moody's rating process, from the time of the preliminary
discussion to the public release of the rating, takes
approximately 60-90 days.
Treatment of Confidential Information
• an issuer's trust in the confidential nature of the rating
relationship is an essential component of the rating
process.
• Confidential information will not be publicly disclosed,
but, if relevant, will be used in the formulation of the
public rating opinion.
Asst Prof S Rebello

13. MOODY’S CREDIT RATINGS
The purpose of Moody's ratings is to provide investors with a
simple system of gradation by which future relative
creditworthiness of securities may be gauged.
TYPES
OF
RATINGS
LONG TERM RATING SHORT TERM RATING
Asst Prof S Rebello

14. LONG TERM RATING
Asst Prof S Rebello

15. Short-Term Rating Scale
Asst Prof S Rebello

16. Aaa
Aa
A
Baa
Ba
B
Caa
No Data available
Asst Prof S Rebello

17. • Long-term Debt Ratings (maturities of one year or greater)
• INVESTMENT GRADE
• Aaa – highest rating, representing minimum credit risk
• Aa1, Aa2, Aa3 – high-grade
• A1, A2, A3 – upper-medium grade
• Baa1, Baa2, Baa3 – medium grade
• SPECULATIVE GRADE
• Ba1, Ba2, Ba3 – speculative elements
• B1, B2, B3 – subject to high credit risk
• Caa1, Caa2, Caa3 – bonds of poor standing
• Ca – highly speculative, or near default
• C – lowest rating, bonds typically in default, little prospect for recovery of principal or
interest
Asst Prof S Rebello