Glossarytaught in E11.01, M8.06, M3.03
Credit rating
Also called credit ratings, investment grade, credit rating agency, rating agency.
An agency's opinion of how likely a borrower is to pay interest and principal on time, expressed on a letter scale. In India the main agencies are CRISIL, ICRA, CARE and India Ratings, regulated by SEBI; globally they are S&P, Moody's and Fitch.
Investment grade means BBB- or above on the S&P and Fitch scales. On Moody's it means Baa3 or above, and anything lower is speculative grade, also called high yield. Many funds may hold only investment-grade debt, so a downgrade across that line forces selling and raises the borrower's cost at the worst moment.
Ratings lag. Agencies are paid by the issuers they rate, and they move in steps. Some Indian lenders went from the top grades to default within months. A bond's spread often moves first, and a spread far wider than peers with the same rating is the market disagreeing with the agency.
Read the rationale, then check the spread.
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