Sources of Foreign Credit

Information

Sy, Dennis Levi C.

FINANCE IV
 Credit Risk Systems
 Based on both qualitative and quantitative evaluations
 Based on general considerations and on experience,
and not on mathematical modeling

 Classifies companies and instruments into discrete

rating categories that correspond to the estimated
likelihood of default
 Rating Agencies
Standard and Poor’s
 Dates as far back as 1860 with
the publication by Henry
Varnum Poor of History of
Railroads and Canals in the
United States
Moody’s
•Was founded in 1909 by John Moody
•Ratings and Analysis track debt
covering more than 100 sovereign
nations, 12,000 corporate issuers,
29,000 public finance issuers, 96,000
structured finance obligations

 Acquired by McGraw-Hill
Companies in 1966

 The first rating agency to rate

mortgage-backed bonds
(1875), mutual funds(1983),
and asset-backed securities
(1985)
 What is a Credit Rating?
 According to S&P, “A credit rating is S&P’s opinion of
the general creditworthiness of an obligor, or
creditworthiness of an obligor with respect to a
particular debt security of other financial obligation,
based on relevant risk factors.”

 According to Moody’s, “A rating is an opinion on the

future ability and legal obligation of an issuer to make
timely payments of principal and interest on a specific
fixed-income security.”
 The Credit Rating Process
(Moody’s)

Company Operating Management Industry

Issue Structure
Structure Position Quality Trends
The Credit Rating Process
(S&P’s)
Credit Ratings