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Moody’s

Категорія — Кредитні рейтинги
By Konstantin Vasilev Member of the Board of Directors of Cbonds, Ph.D. in Economics
Updated February 14, 2024

About Moody’s Credit Rating Agency

Moody’s Investors Service, a prominent component of Moody’s Corporation, stands as a leading credit rating agency globally. Moody’s Investors Service performs economic research related to credit analysis, performance management, financial modeling, structured analysis, and financial risk management. Its assessments cover various market segments, including government, municipal, and corporate bonds, as well as managed investments and structured finance securities. The agency, along with its counterparts Standard & Poor’s and Fitch Group, forms the trio often referred to as the Big Three credit rating agencies, exerting substantial influence in global capital markets by offering supplementary credit analysis for banks and financial institutions.

Moody’s Corporation, the parent company of Moody’s Investors Service, extends beyond credit ratings to offer a comprehensive suite of financial solutions through its Moody’s Analytics segment. With a workforce exceeding 14,000 employees across more than 40 countries, Moody’s empowers decision-makers with data, analytical solutions, and insights to identify opportunities and manage risks effectively. Moody’s commitment to transparency and informed decision-making positions it as a key player in navigating the complexities of the global economy, reflecting its century-long dedication to providing valuable financial analysis and risk management tools.

Moody’s

Moody’s History

Moody’s Corporation boasts a rich and storied history dating back to its establishment in 1900 by founder John Moody. The company’s initial venture, "Moody’s Manual of Industrial and Miscellaneous Securities," laid the groundwork by providing comprehensive information and statistics on stocks, bonds, and various financial institutions. Despite facing financial challenges during the Bank Panic of 1907, Moody’s persevered and rebounded with the publication of "Moody’s Analyses of Railroad Investments" in 1909, pioneering a new approach by offering analytical insights into the operations and finances of railroads.

In 1914, Moody’s Investors Service was founded, expanding the company’s scope to provide credit ratings for industrial companies, utilities, and municipal bonds. Over the years, Moody’s Corporation changed ownership, including being acquired by credit reporting company Dun & Bradstreet in 1962 before being spun off as an independent entity in 2000.

Moody’s Ratings Process

The process involves an in-depth examination of financial health, management practices, industry trends, and prevailing economic conditions relevant to the entity under consideration. Utilizing a combination of quantitative and qualitative factors, Moody’s analysts analyze financial ratios, cash flow, debt levels, market position, regulatory environment, and management quality to form a nuanced understanding of the entity’s credit risk.

Once a thorough understanding is established, Moody’s assigns credit ratings using a standardized scale that communicates the likelihood of default or failure to meet financial obligations. The scale encompasses letter grades from Aaa to C, with numerical modifiers providing additional granularity. This rating system aids investors in gauging the relative creditworthiness of securities. Moody’s also places the rated entity in context by comparing it to peers within the same industry, facilitating a comprehensive understanding of how the entity’s credit risk compares to others in a similar position.

Usage of Moody’s Ratings

Institutional investors, including mutual funds, pension funds, insurance companies, and hedge funds, rely on Moody’s ratings to assess the risk associated with corporate bonds and other debt securities. These ratings are instrumental in guiding investment decisions, aiding institutional investors in portfolio diversification and effective risk management.

Banks and lenders leverage Moody’s ratings to evaluate the creditworthiness of corporations seeking loans or credit facilities. The assigned credit ratings influence the terms and interest rates offered to borrowers, serving as a key factor in shaping financial agreements.

Additionally, when companies plan to issue debt securities such as bonds, they consult Moody’s ratings to understand the credit impact and risk assessment of potential investors. Higher credit ratings often translate to lower borrowing costs for the issuing company, making Moody’s ratings a crucial factor in shaping the dynamics of the debt market.

Ratings and Criticisms

Moody’s Investors Service, alongside other major credit rating agencies, faced substantial criticism in the aftermath of the 2007-2008 global financial crisis. The agencies were under scrutiny for assigning high credit ratings to mortgage-backed securities that, in many cases, comprised risky subprime loans. The complexity of their rating models failed to account for the possibility of a widespread decline in housing prices and its potential impact on the performance of these securities. As housing prices began to fall in 2007, Moody’s downgraded a significant portion of the mortgage securities it had previously rated at the highest level, revealing a failure to accurately assess and anticipate the risks involved.

The perceived conflict of interest, where bond issuers paid the rating agencies for their services, also came under scrutiny. Critics argued that this arrangement may have influenced the agencies to provide inflated ratings, compromising the accuracy and reliability of the assessments. In response to these criticisms, regulatory measures, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, were introduced in the United States to enhance oversight of credit rating agencies and mitigate conflicts of interest. These events underscored the need for increased transparency, accountability, and accuracy in credit rating processes to restore confidence in the financial markets.

Recent Developments and Acquisitions

Moody’s Corporation has strategically positioned itself for the future through recent developments and acquisitions that reflect its commitment to staying at the forefront of the shifting landscape of finances. In line with this, Moody’s has broadened its focus to include key sectors such as real estate, cybersecurity, and expertise in Environmental, Social, and Governance (ESG) considerations. These strategic moves highlight Moody’s proactive approach to addressing emerging challenges and aligning its services with the evolving needs of the global economy. By expanding its capabilities in areas like cybersecurity, Moody’s aims to contribute to the resilience of financial systems and enhance risk management in an increasingly digital and interconnected world.

The acquisitions made by Moody’s underscore the company’s dedication to providing comprehensive solutions for its clients. Moody’s Corporation remains at the forefront of the financial industry, leveraging cutting-edge technology to provide innovative solutions and advanced analytics that empower decision-makers in navigating the complexities of global capital markets.

Differentiating Credit Ratings and Credit Scores

It’s essential to differentiate between credit ratings and credit scores as they serve distinct purposes and apply to different entities. Credit ratings, such as those provided by Moody’s Investors Service, are assessments of the creditworthiness of corporations, governments, and other entities issuing debt securities. These ratings offer investors insights into the risk associated with investing in the bonds or debt of a particular entity. Moody’s employs a standardized scale that ranges from the highest credit quality (Aaa) to the lowest rated, indicating a likelihood of default (C). The credit rating process involves a thorough evaluation of various factors, including financial health, industry trends, and economic conditions, providing a nuanced understanding of an entity’s ability to meet its financial obligations.

On the other hand, credit scores are distinct metrics used to assess the creditworthiness of individual consumers. While credit ratings are assigned to entities and their issued debt, credit scores are generated for individuals based on their credit history. Entities like Moody’s do not provide credit scores for consumers; instead, these scores are typically generated by credit bureaus using scoring models developed by organizations like FICO and VantageScore. Credit scores are crucial for individuals seeking loans or credit, influencing the terms and interest rates they may receive based on their creditworthiness.

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