Conference Magazine - GoingPublic.de - Deutsches Eigenkapitalforum

Corporate Financing
What are credit ratings?
Ratings reduce information asymmetry and improve
market functioning and efficiency
Credit ratings are opinions about credit risk. Standard &
Poor’s ratings express the agency’s opinion on the ability
and willingness of an issuer, such as a corporation, to meet
its financial obligations in full and on time. Credit ratings
can also allow individuals to get a picture of the credit
quality of an individual debt issue, such as a corporate
bond, and the relative likelihood that the issue may default.
We express our ratings as letter grades ranging from ‘AAA’
to ‘D’ to communicate our opinion on the relative level of
credit risk.
We base our ratings on analyses performed by experienced
credit analysts who evaluate and interpret information
received from issuers and other available sources to form a
considered opinion. Unlike other types of opinions, such
as, for example, those provided by doctors or lawyers,
credit ratings opinions are not intended to be a prognosis or
recommendation. Ratings should not be viewed as an
assurance of credit quality nor as an exact measure of the
likelihood of default. Rather, they are primarily intended to
Figure 1: Standard & Poor’s analyst-driven rating process
Source: Standard & Poor’s
Page 16 Deutsches Eigenkapitalforum 2012
Tobias Mock is a Managing Director
and Lead Analytical Manager in the
Corporate Ratings department of
Standard & Poor’s, based in Frankfurt.
He leads the Light Industries team in
EMEA, which covers the telecoms,
high-tech, media, retail, leisure, consumer
goods, healthcare and real
estate industries.
Tobias Mock, Managing Director and
Lead Analytical Manager, Corporate Ratings,
Light Industries, Standard & Poor’s
provide investors and market participants with information
about the relative credit risk of issuers and individual debt
issues that the agency rates.
The corporate rating process
at S&P
When rating a corporation, we
assign a lead analyst, often in conjunction
with a team of specialists,
to evaluate the entity’s credit -
worthiness. Typically, analysts
obtain information from published
reports, interviews and discussions
with the company’s management
team, as well as from their sector
and market analyses. The rating
process is dynamic and evaluates
qualitative and quantitative information
on an ongoing basis. There
is at least a bi-annual review for all
corporate ratings and typically an
annual meeting attended by the
analytical team and the senior
management team of the rated corporate.
Fig. 1 illustrates the typical
rating process for a corporation.