Credit ratings are assessments of the creditworthiness of debt issuers — corporations, governments, financial institutions, and structured securities — issued by nationally recognized statistical rating organizations (NRSROs). The three dominant global rating agencies are Moody's Investors Service, S&P Global Ratings (S&P), and Fitch Ratings. Their ratings are used by investors, regulators, and counterparties to assess default risk and benchmark credit quality.
The major agencies use letter-based scales that differ slightly in notation but are equivalent in meaning. S&P and Fitch use a scale from AAA (highest quality) down through D (in default), with + and - modifiers for intermediate gradations. Moody's uses Aaa down to C, with numerical modifiers (1, 2, 3). The investment grade/speculative grade threshold falls at BBB-/Baa3 and below.
The rating process begins when an issuer requests a rating — most public debt issuances are rated, and the issuer typically pays for the rating (the "issuer-pays" model, which creates potential conflicts of interest that have been widely debated). The agency's analysts review the company's financial statements, management presentations, business plans, and industry context. A credit committee discusses and votes on the rating, and the rating is then published with a supporting rationale (the "rating action" or "presale report").
Ratings are assigned at two levels: the issuer credit rating (the company's overall creditworthiness) and the issue rating (the rating of a specific debt instrument, which reflects both the issuer's creditworthiness and the instrument's structural features — security, priority, guarantees). A company rated BB+ overall might have senior secured debt rated BBB- and subordinated debt rated B+.
Rating agencies also publish outlooks (Stable, Positive, Negative, Developing) that signal the likely direction of future rating changes, and place issuers on CreditWatch/Review when a near-term rating action is likely. Changes in outlooks and CreditWatch placements can have immediate market pricing implications, often before a formal rating change occurs.