Credit Ratings

Summary

This practice note describes credit rating agencies (each a CRA), which provide an objective and analytical opinion on the risk of payment defaults by looking at various factors that help investors decide whether to invest in particular loans or securities. Investors in the capital markets are very sensitive to risk and some investors are prevented by their internal constitutional documents from investing in low grade loans and securities. Generally, the higher the investment risk, the greater the return (interest/coupon) the investor will seek.