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A Credit rating agency is an independent company that assesses companies and assigns credit ratings. These credit ratings provide a useful tool for assessing credit worthiness of companies as part of any Due Diligence that is being undertaken.
Credit ratings can be a useful tool to help compare the credit risk associated with different Counterparties or companies providing financial guarantees to the Counterparty. Credit ratings are assigned to companies by independent Credit Rating Agencies after detailed analysis of their financials. Gilliat uses credit ratings as part of its Counterparty assessment when choosing the Counterparty for their Structured Investment Products.
Moody’s, Standard & Poor’s and Fitch Ratings are three internationally recognised independent rating agencies.
The information below describes the ratings of these agencies.
|Description||Moody's||Standard & Poor’s||Fitch Ratings|
|Higher medium Grade||A1||A+||A+|
|Higher medium Grade||A2||A||A|
|Higher medium Grade||A3||A-||A-|
|Lower medium Grade||Baa1||BBB+||BBB+|
|Lower medium Grade||Baa2||BBB||BBB|
|Lower medium Grade||Baa3||BBB-||BBB-|
|Very high levels of credit risk||Ca||CC||CC|
|Exceptionally high levels of credit risk||C||C||C|
• = no rating
* Restricted default, “RD” ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business.
|Moody's||Standard & Poor’s||Fitch Ratings|
|Aaa||AAA||AAA: Highest credit quality|
|Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.||An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest issuer credit rating assigned by Standard & Poor’s.||'AAA' ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events|
|Aa||AA||AA: Very high credit quality|
|Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.||An obligor rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.||'AA' ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.|
|A||A||A: High credit quality|
|Obligations rated A are considered upper-medium grade and are subject to low credit risk.||An obligor rated 'A' has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.||'A' ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.|
|Baa||BBB||BBB: Good credit quality|
|Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.||An obligor rated 'BBB' has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.||'BBB' ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.|
|Ba||BB, B, CCC, and CC||BB: Speculative|
|Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.||Obligors rated 'BB', 'B', 'CCC', and 'CC' are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘CC’ the highest. While such obligors will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.||'BB' ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.|
|B||BB||B: Highly speculative|
|Obligations rated B are considered speculative and are subject to high credit risk.||An obligor rated ‘BB’ is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitments.||'B' ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.|
|Caa||B||CCC: Substantial credit risk|
|Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.||An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments.||Default is a real possibility.|
|Ca||CCC||CC: Very high levels of credit risk|
|Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.||An obligor rated ‘CCC’ is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.||Default of some kind appears probable.|
|C||CC||C: Exceptionally high levels of credit risk|
|Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.||An obligor rated ‘CC’ is currently highly vulnerable.||Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a 'C' category rating for an issuer include:
|R||RD: Restricted default|
|Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category||An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others. Please see Standard & Poor’s issue credit ratings for a more detailed description of the effects of regulatory supervision on specific issues or classes of obligations.||‘RD’ ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include:
|‘D’ ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business.|
Rating Watches indicate that there is a heightened probability of a rating change and the likely direction of such a change. These are designated as “Positive”, indicating a potential upgrade, “Negative”, for a potential downgrade, or “Evolving”, if ratings may be raised, lowered or affirmed.
A Rating Outlook (neutral, positive or negative) indicates the likely rating trend over a one to two-year period. It reflects financial or other trends that have not yet reached the level that would trigger a rating action, but which may do so if such trends continue.
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