Credit Rating Process and Credit Rating Agencies


This practice note discusses third-party credit rating agencies (CRAs) and credit ratings issued by CRAs. Credit ratings are assessments by CRAs of an issuer's creditworthiness, either generally, or with respect to a particular debt obligation. While issuers are not required to obtain credit ratings to access the financial markets, unrated debt is generally prohibitively expensive and significantly less marketable than rated debt. This practice note discusses the background, function, and criticism of credit ratings; process for obtaining a credit rating; meaning of different credit ratings; regulatory and industry standards applicable to CRAs that have been designated nationally recognized statistical rating organizations (NRSROs) by the Securities and Exchange Commission (SEC); and liability of CRAs.