Credit risk refers to the potential failure of a counterparty to return principal, interest, or other required payments to a creditor (lender, vendor, government, etc.).
A credit rating is an important metric which communicates credit risk to external parties.
The chart below shows the credit rating scales of three major global rating agencies recognized by the US Securities and Exchange Commission:
The chart also highlights the important distinction between investment grade ratings (BBB- and above) and non-investment grade or speculative/junk status (BB+ and below).
Analysts use quantitative modeling and qualitative assessment tools to assign risk ratings, including assessment of:
Ratings impact business and financial markets:
In this Standard & Poor's TV video, Timothy Poole, Director, Client Business Management, explains why Corporates use Standard & Poor's ratings and the process through which they obtain a rating.
