Credit Ratings

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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.

Further information about these ratings is available from your financial adviser or can be found at:
www.dbrs.com
www.standardandpoors.com
www.fitchratings.com
www.moodys.com

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
Maximum safety Aaa AAA AAA
High grade Aa1 AA+ AA+
High grade Aa2 AA AA
High grade Aa3 AA- AA-
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-
Speculative Ba1 BB+ BB+
Speculative Ba2 BB BB
Speculative Ba3 BB- BB-
Highly Speculative B1 • B+
Highly Speculative B2 B B
Highly Speculative B3 • B-
Substantially risky • CCC+ CCC+
Substantially risky Caa CCC CCC
Very high levels of credit risk Ca CC CC
Exceptionally high levels of credit risk C C C
Default • • DDD
Default • • DD
Default • D D
Restricted default* • • RD

• = 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.

Credit rating definitions

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:
  • the issuer has entered into a grace or cure period following non-payment of a material financial obligation;
  • the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; and
  • Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a coercive debt exchange.
  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:
  • the selective payment default on a specific class or currency of debt;
  • the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
  • the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; and
  • execution of a coercive debt exchange on one or more material financial obligations.
    D: Default
    ‘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 Watch and Rating Outlook

Rating Watch

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.

Rating Outlook

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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