Evaluation or credit assessment of the issuer of a security based on a standardised method.
A rating is a qualitative evaluation of the default risk of a debtor, a credit or a bond issue. There is a distinction between short-term ratings and long-term ratings depending on the future period for which the repayment potential is assessed.
Ratings are expressed in letter codes; they are divided into various levels. Rating agencies determine their ratings on the basis of a systematic procedure. The largest agencies in this area are Standard & Poors, Moodys and Fitch.
Rating codes vary from agency to agency or according to different time patterns. Moody's, for instance, uses letters and numbers in combination, such as in A1, A2, A3. Standard & Poor's, on the other hand, adds "+" or "-", such as in B+, B, B-. Thereby, AAA (triple A) stands for the highest level of creditworthiness and D indicates a looming insolvency.
