Submitted to:Prof. Megha Jain

Submitted by:Shreta MaheshwariAyush MalviyaAyushi RathoreAkash ChouhanApkesha MalviyaMayur YadavNikhil BijlaniSatyam Kesarwani

Credit Rating

A credit rating estimates the credit worthiness of an a financial security, a corporation, local

government or even a country.

An estimate of the ability of a person or organization to fulfill their financial

commitments, based on previous dealings.

Importance

Credit ratings for borrowers are based on substantial due diligence conducted by the

rating agencies. While a borrower will strive to have the highest possible credit rating since it has a major impact on interest rates charged by lenders, the rating agencies must take a

balanced and objective view of the borrower’s financial situation and capacity to

service/repay the debt.

Nature of Credit Rating

Benefits of Ratings

For Companies• Market access (gate keeping)• Expands breadth of market• Widens distribution• Improves liquidity• Improves pricing• Helps management with

independent, outside perspective on company

• Helps management monitor counterparty risk

For Investors• Due diligence efficiency• Multiple independent perspectives• Facilitates comparisons• Tool in portfolio management• Enhances secondary market liquidity• Relatively stable over time• Basis for performance benchmarks

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Use of Credit Rating

Credit Rating

Pricing

Trading

Regularly RequirementsContracts

Building portfolio

Factors Affecting Credit Rating

Payment history ---- 35% Amount owed ---- 30% Length of credit history ---- 15%New credit ---- 10%Types of credit in use ---- 10%

Credit Rating SymbolsAn opinion on the issuer’s capacity to meet its financial obligations on a particular issue in a timely manner, for example long-term bonds:

Rating Methodology

Rating Methodology (Continue)

Rating Methodology (Continue)Business risk

Rating Methodology (Continue)Business risk (continue)

Rating Methodology (Continue)

Cash Flow and Financial Analysis

Additional Analysis

Short term v/s Long termCredit Rating

Short term Long term

Type of credit rating has become the norm in recent years.

In the past, long-term credit ratings were more heavily considered.

Reflects the likelihood of the borrower defaulting within the year.

Long-term credit ratings predict the borrower's likelihood of defaulting at any given time in the extended future.

Process of Credit Rating

Distinction Between Credit Rating and Reporting

A credit reporting agency is responsible for

compiling financial data that is necessary for loan decisions.

A credit rating agency does all the statistical assessments that are involved in placing a rating on a company or organization’s credit history..

A credit rating agency is responsible for providing investors with information about an organization’s creditworthiness.

Nationally Recognized Statistical Rating Organization

• In 1975, the U.S. Securities Exchange Commissionestablished the ‘Nationally Recognized Statistical Rating Organization’ (NRSRO) designation

• Three of best known rating agencies in the U.S. were named:• Moody’s Investor Services• Standard and Poor’s• Fitch Rating

• In 2003, the SEC approved a fourth NRSRO, Dominion Bond Rating Services (DBRS) from Canada.

Top Credit Rating Agencies

Global

S & PMoody

Fitch

Standard And Poor’s

• Established in ---- 1957• Corporate office ---- New York City, New York,

US• Business ---- credit ratings, research• Market Share ---- last price in USD – 2018.94

Moody’s

• Established in ---- 1909• Corporate office ---- New York City, New York,

US• Business ---- credit ratings, research, credit risk

management and other services• Market Share ---- last price in USD – 97.93

Fitch Ratings

• Established in ---- 1914• Corporate office ---- New York and London• Business ----credit ratings and research; Fitch

Solution, analytical tools and risk services; BMI research, an independent provider of country risk and industry and Fitch Learning.

• Market Share ---- last price in USD –

Rating Scales used by major Credit Raters

Top Credit Rating Agencies

India

Crisil Limited

CIBIL

CARE

Crisil Ltd

• Established in ---- 1987• CEO --- Mr. Ashu Suyash• Headquarter ---- Mumbai, Maharashtra• Business ---- A Global analytical company

providing ratings, research and risk, and policy advisory services.

• Market Share ---- last price in USD – • Majority shareholder is hold by S&P.

CIBIL

• Established in ---- August 2000 (It’s a Credit Information Company)

• CEO --- Mr. Satish Pillai• Headquarter ---- Nariman Point, Mumbai • Business ---- help loan providers manage their

business or help consumers secure credit faster and at better terms

• Market Share ---- last price in USD –

CARE

• Established in ---- April 1993• Corporate office ---- Somaiya Hospital Road, Sion

(East), Mumbai 400 022. • Business ---- the entire spectrum of credit rating• Market Share it has established itself as the second-largest

credit rating agency in India. With the rating volume of debt as Rs. 68.08 lakh crore

Advantages of Credit Rating

Benefits to Investors Safety of investments. Recognition of risk and

returns. Freedom of investment

decisions. Wider choice of investments Dependable credibility of

issuer Easy understanding of

investment proposals

Benefits the Company Easier to raise funding Reduced cost of borrowing Reduce cost of public issues Ratings can build up image Ratings facilitates growth Recognition to unknown

companies

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Benefits to IntermediariesFor brokers ratings make it easier to persuade clients to select an investment proposal of investment in highly rated instruments.

Disadvantages of Credit Rating

Credit rating suffers from the following limitations: Non-disclosure of significant information Static study Rating is no certificate of soundness Rating may be biased Rating under unfavorable conditions Difference in rating grades Improper Disclosure May Happen Impact of Changing Environment Problems for New Companies Downgrading by Rating Agency

Conclusion

• Moody is consider the best credit rating agency in the world.

• It is consider while dealing in capital market and debt for investing in a company, corporation or in the country.

Reference

• A Brief History Of Credit Rating Agencies http://www.investopedia.com/articles/bonds/09/history-credit-rating-agencies.asp#ixzz3pHOrey7h

• http://www.careratings.com/about-us.aspx• http://www.crisil.com/index.jsp• https://www.cibil.com/search/node/market%20share• https://www.google.co.in/#q=fitch+ratings• https://www.moodys.com/researchandratings/region/asi

a-pacific/india/00400000000C/4294965089/4294967230/-1/0/-/0/-/-/-/-/-/-/-/en/global/pdf/-/rra

• http://www.hoovers.com/company-information/cs/company-profile.MOODYS_CORPORATION.bfdac814a90fd613.html

• http://markets.ft.com/research/Markets/Tearsheets/Summary?s=INX:IOM

• http://www.careratings.com/about-us.aspx