Do Credit Rating Announcements Have Informational Value ...

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As can be seen, the ratings have been divided into two large categories. The separation between
these two is the most visible and the most used threshold. Many regulations that utilize credit
ratings set the restriction by terms of investment- vs. speculative grade. This is the case whether
the regulation is about capital ratios or investment restrictions. A finer allocation has also been
made into smaller categories that include three symbols at most. However, these sub-categories
can rarely be seen in everyday language and writings as opposed to the, lately quite often used,
term junk-bond which is used to describe speculative grade.
Ratings can be of various different types. First of all there are long-term and short-term ratings.
There are also issue-specific and issuer-specific ratings. In this thesis I will concentrate on the
issuer-specific long-term ratings.
Along a rating, an outlook is also assigned. Outlook is used to express the opinion regarding the
likely direction of a rating in over the medium term. The outlook related to a rating can be
positive, negative, stable or developing. Developing outlook means that the future of a rating is
contingent upon a certain event. (Moody´s, 2012)
In addition to the actual ratings, CRAs also publish watchlistings. A company is put on a watch list
when its rating is under review for possible change in the short-term. The change that is being
considered can be possible upgrade, possible downgrade or the direction of the possible change
can be uncertain. When a rating has been upgraded, downgraded or confirmed the issuer is
removed from the watchlist. (Moody´s, 2012)
2.7 Rating process
Some companies issue both unsolicited and solicited ratings. Solicited ratings are far more
common and some companies only assign them. Therefore, I will first describe the rating process
as it goes with solicited ratings. At the end of this chapter I will write about unsolicited ratings.
There are some differences between the rating processes of different CRAs but the overall
structure among the three biggest is very similar. Therefore, I will only walk you through the
process of S&P as it is described in their website.
The rating process starts when an issuer applies for a rating. After that the issuer will deliver a
wide array of documents at which point the initial analysis will begin. After the initial analysis the
analysts will meet the management of the issuing company and they will discuss the analysis and