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What do credit rating agencies do?
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11th Dec 2009 by JonB
Credit rating agencies assign credit ratings to various companies who issue public debt, eg. bonds. It is their job to evaluate the company and find out how risky their debt is, or how likely they are to default. This way, buyers of bonds can have an unbiased opinion when making their investments. Also, the companies themselves have an idea of their own credit worthiness, just like an individual may check their credit report. It's true that some of the largest meltdowns have occurred at companies who's rating stood at "investment grade", and lately credit rating agencies have been scrutinized for lack of downgrades before many companies nearly went bankrupt in 2008 and 2009.
Credit rating agencies assign credit ratings to various companies who issue public debt, eg. bonds. It is their job to evaluate the company and find out how risky their debt is, or how likely they are to default. This way, buyers of bonds can have an unbiased opinion when making their investments. Also, the companies themselves have an idea of their own credit worthiness, just like an individual may check their credit report. It's true that some of the largest meltdowns have occurred at companies who's rating stood at "investment grade", and lately credit rating agencies have been scrutinized for lack of downgrades before many companies nearly went bankrupt in 2008 and 2009.
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10th Dec 2009 In Investing
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