Ratings Process

Summary

This video explains the credit rating process by Fitch, emphasizing its role as an opinion on an entity's ability to meet financial commitments. It covers the importance of credit ratings in strategic planning, investment decisions, and how they indicate default risk levels. The ratings range from AAA, indicating high credit quality, to D, signaling default. The process typically takes 2-4 weeks and involves a thorough analysis, engagement with Fitch analysts, and ongoing communication. New issuers can receive an indicative rating, allowing them to assess their status confidentially before opting for a public rating.

Takeaways

• 😀 A credit rating is Fitch's opinion on an entity's ability to meet financial commitments.
• 📊 Credit ratings aid in strategic planning, peer benchmarking, and investment decisions.
• 🔍 Fitch's rating scale ranges from AAA (highest credit quality) to D (payment default).
• 🗂️ Investment-grade ratings (AAA to BBB-) indicate low to moderate default risk.
• ⚠️ Speculative-grade ratings (BB+ to D) signal higher default risk or existing defaults.
• 📝 The ratings process typically takes 2 to 4 weeks, depending on analysis complexity.
• 🤝 Fitch analysts meet with issuers to discuss business details and gather necessary information.
• 🛠️ Analysts conduct thorough analyses before presenting a rating decision to an internal committee.
• 📣 Ratings are discussed with the issuer prior to public release, ensuring accuracy.
• 🔄 Fitch provides ongoing support and periodic reviews to keep ratings up to date.

Q & A

What is a credit rating?

A credit rating is an opinion on the relative ability of an entity to meet its financial commitments. It reflects the issuer's credit risk.

What is the purpose of Fitch Ratings?

Fitch Ratings is a leading global provider of credit ratings, commentary, and research. It helps investors make informed credit judgments.

How is Fitch's rating scale structured?

Fitch's rating scale ranges from AAA, indicating the highest credit quality, to D, which indicates payment default. Modifiers such as pluses or minuses can denote relative status within major rating categories.

What distinguishes investment grade from speculative grade ratings?

Investment grade ratings (AAA to BBB-) indicate relatively low to moderate default risk, while speculative grade ratings (BB+ to D) signal higher default risk or indicate that a default has already occurred.

What is the typical duration of the credit rating process?

The ratings process typically takes approximately two to four weeks, depending on the complexity of the analysis.

What initial steps does an entity take to engage with Fitch Ratings?

The process begins when a company signs an engagement letter, which includes confidentiality provisions and assigns a primary and secondary analyst based on the industry sector.

What role do Fitch analysts play in the ratings process?

Fitch analysts collect information, develop a rating rationale based on both publicly available and confidential data, and engage in discussions with the issuer to understand their business better.

How does Fitch ensure the accuracy of its ratings before publication?

Before making a rating public, Fitch discusses the outcome with the issuer and reviews a press release to verify factual content and ensure no non-public information is disclosed.

What ongoing support does Fitch provide after a rating is published?

After publication, Fitch analysts continue to communicate with the issuer and monitor industry and market events to keep the rating updated and reflective of the issuer's current activities.

What is an indicative rating, and who can request it?

An indicative rating is an initial rating provided in writing and is not intended for public distribution unless the issuer decides to convert it to a solicited rating. It is available for first-time issuers with Fitch.