Moody's Investors Service: A Comprehensive Guide to Credit Ratings
Understanding the Difference Between Structured Finance and Fundamental Ratings
Moody's Investors Service (MIS) plays a crucial role in the global debt markets by providing investors with in-depth credit ratings and research.
MIS differentiates between structured finance ratings and fundamental ratings. Structured finance ratings assess the creditworthiness of financial instruments backed by a pool of assets, such as mortgage-backed securities or collateralized debt obligations.
On the other hand, fundamental ratings evaluate the financial strength and creditworthiness of non-financial corporate and public sector entities.
Moody's Rating Scale
MIS employs a 21-step rating scale to assess creditworthiness, ranging from a high of Aaa to a low of C. This scale provides investors with a clear understanding of the potential risks associated with an investment.
Aaa-rated investments are considered the most creditworthy, while C-rated investments have a high probability of default.
The Importance of Investment Grade Ratings
An investment grade rating indicates that a bond presents a relatively low risk of default. These ratings are highly sought after by investors because they offer a balance of return and stability.
Bonds with investment grade ratings are typically considered suitable for conservative investors.
Moody's Review Process
When MIS assigns a rating, it conducts a thorough review of the entity's financial performance, industry dynamics, and management team.
MIS aims to conclude this review within 90 days, providing investors with timely and accurate information to make informed decisions.
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