Frequently Asked Questions
1. What is a credit rating?
A credit rating represents the rating agency's opinion on the likelihood of a rated debt obligation being repaid in full and on time. The rating scales include different grades, representing different level of capacity of the issuer to meet financial obligations (Details on the Rating Scales of FiinRatings can be found here).
2. How does a credit rating agency differ from a credit bureau?
A credit rating agency provides an opinion relating to future debt repayment ability by borrowers. A credit bureau provides information on debt history of borrowers.
3. How does a credit rating differ from an audit?
A credit rating agency relies on a variety of information sources, including both internal and public information, annual reports and audited financial statements to provide an opinion on the capacity of the issuer to fulfill financial obligations in the future. An audit firm usually uses internal document and data along with some external information to provide an opinion on the truth and fairness of historical data on financial statements.
4. Does a credit rating assure repayment?
A credit rating is not an assurance of repayment of the rated instrument. Rather, it is an opinion on the relative degree of risk associated with such repayment based on our methodology to assess the issuer’s credit risk.
5. If the issuer pays for the rating, how does a CRA maintain its independence?
Although the issuer pays for the rating, investors and market participants are its main users. Like any other product or service, the 'value' of the rating depends entirely on the perceptions of the investor. Investor perceptions are based on the credibility of the past ratings assigned by each rating agency. Therefore, a credit rating agency must maintain its independence to provide accurate and objective opinions. Additionally, credit rating agencies also maintain codes of conducts and ethics, conflict of interest control policies, and quality control policies to ensure objectivity and independence for ratings opinions. Read more about FiinRatings policies here.
6. How do investors benefit from a credit rating?
Credit ratings help investors facilitate comparative assessment of investment options, complement the investors' own credit analysis and decision making, and allow more efficient asset monitoring. Read more about the benefits that credit ratings bring to investors here.
7. Does the minus sign in a rating symbol have negative connotations relating to the issuer's performance or its debt-servicing capability?
Plus and minus symbols are used to indicate finer distinctions within a rating category. The minus symbol associated with ratings has no negative connotations whatsoever. Learn more about the meaning of FiinRatings' credit rating scales here.
8. Can credit ratings change?
Credit ratings are assigned based on certain expectations and assumptions about factors that affect the issuer's performance. However, these factors can change, causing the rated entities' performance to deviate significantly from expectations. This is reflected in their changed credit ratings score or outlook.
9. If a credit rating is downgraded, does it mean that a default is imminent?
Not necessarily. In most cases, a downgrade does not mean that a default is anticipated. All it indicates is that the risk associated with the debt obligation is relatively higher than what it was before the downgrade.