Latest Credit Rating News

Tesoro assigned 'BBB-' credit rating, analysts downgrade stock
Still, the stock has a consensus rating of “buy” and an average target price of $ 94.64, according to Sleek Money. Tesoro's stock opened at $ 85.56 on Wednesday. The company has a 52-week low/high of $ 47.03 and $ 94.83, respectively. The company has a …
Read more on San Antonio Business Journal (blog)

Vulcan Materials Company Earns “BB” Credit Rating (VMC)
Vulcan Materials Company logo Vulcan Materials Company (NYSE:VMC) has received a “BB” credit rating from Morningstar. The research firm's “BB” rating indicates that the company is an above-average default risk. They also gave their stock a two star …
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Houston Bankruptcy Attorneys Increase Credit Rating

Bankruptcy is similar to a curse that impacts living of a person or business when the person or the company is incapable to repay loans because financial crisis. The personal bankruptcy is pronounced for everyone people who don’t have funds adequate to settle their debts and they’ve got been going right on through a phase of dropping precious properties and opportunities. However in the USA, the personal bankruptcy laws and regulations comply with the Bankruptcy Codes to assist bankrupts get respite from asset property foreclosure and also to bring an-end for their bad credit rating. Because of this, they have to seek bankruptcy relief in judge of rules utilizing the assistance of a legal practitioner. Including, residents of Houston with bankrupts because their status usually takes legal assessment from Houston personal bankruptcy lawyers as they have understood national regulations and US Bankruptcy Codes completely. Complete knowledge on national laws and regulations and involvement in diverse bankruptcy cases make Houston personal bankruptcy solicitors handy in their field, thereby allowing personal bankruptcy processing procedure effortless and hassle-free.

Houston personal bankruptcy attorneys demonstrate their suzerainty inside legal business by decreasing liabilities and debts and allowing individuals arrange their particular assets and assets. Aside with their appropriate understanding, in addition they behave as financial advisors to debtors plus creditors as they design repayment plans and fix the having to pay quantity in equilibrium with all the approval of both debtors and lenders. There’s absolutely no denying the fact that the Houston personal bankruptcy attorney can be responsible to determine the candidature regarding the petitioners that under which chapter they might be privileged to file for bankruptcy. They defend your cases with utmost sincerity and compel the court to give judgment towards favor and instruct the creditor to remain from foreclosure till the extent of the repayment tenure.

Bankruptcy regulations in the USA is highly complicated and stringent and personal bankruptcy contains over sixty different situations and procedures and every control owns over hundred more sub-categories. To learn each discipline and case, Houston bankruptcy lawyers must certanly be well-versed with all the federal laws and regulations to be able to offer justice to their customers. So, hire a Houston personal bankruptcy lawyer and increase credit score within a hard and fast time.

Looking for Houston bankruptcy lawyer in Houston? Busby & Associates is law and personal bankruptcy firm that delivers Houston bankruptcy attorney, divorce proceedings attorney and appropriate solutions in Houston.

Discover More Credit Rating Articles

Why Europe Is Tantalizing for Credit Rating Firms

Why Europe Is Tantalizing for Credit Rating Firms
A ratings-agency turf war is brewing in Europe. DBRS Ltd. will grow its presence in Europe, once the Canadian ratings firm's purchase by private-equity giants Carlyle Group LP and Warburg Pincus LLC closes this week, The Wall Street Journal has reported.
Read more on Wall Street Journal (blog)

Killing Your Credit Rating Is a Lot Easier Than Building It Up
NEW YORK (MainStreet) — It's a lot easier to kill your credit score than it is to build it up. In fact, your credit score can go from highly respectable to down in the dumps in as little as three months if you play your cards totally wrong. That won't …
Read more on MainStreet

Alibaba's Ant Financial Adds Credit Rating Service
The number is also calculated similar to a credit score in that it takes into account loan records, but what's unique about this credit rating system is it has a social networking aspect as it takes into account the consumer's own hobbies or the …
Read more on PYMNTS.com

Rowan Companies PLC Assigned BBB- Credit Rating (RDC)

Rowan Companies PLC Assigned BBB- Credit Rating (RDC)
Rowan Companies PLC logo Rowan Companies PLC (NYSE:RDC) has earned a “BBB-” credit rating from analysts at Morningstar. The research firm's “BBB-” rating suggests that the company is a moderate default risk. They also gave their stock a three star …
Read more on The Legacy

Marriott International Earns BBB- Credit Rating (MAR)
Marriott International logo Marriott International (NASDAQ:MAR) has earned a “BBB-” credit rating from Morningstar. The investment research firm's “BBB-” rating suggests that the company is a moderate default risk. They also gave their stock a one star …
Read more on The Legacy

Egypt Credit Rating Raised by Fitch on Subsidies, Oil Savings
Egypt's debt was upgraded by Fitch Ratings, which praised the government's efforts to reduce budget deficits and said the recent slump in commodity prices will generate further savings. The long-term foreign-currency debt rating was increased to B …
Read more on Businessweek

Mallinckrodt PLC Earns "BB-" Credit Rating from Morningstar (MNK)
Mallinckrodt PLC logo Mallinckrodt PLC (NYSE:MNK) has received a “BB-” credit rating from Morningstar. The investment research firm's “BB-” rating indicates that the company is an above-average default risk. They also gave their stock a two star rating.
Read more on The Legacy

Latest Credit Rating News

Twitter Is Junk, Says S&P
Twitter shares are down more than 5% in afternoon trade on Thursday, giving up almost all of their gains from yesterday, after the company received a "junk" rating from credit agency S&P. S&P gave Twitter a 'BB-' corporate credit rating and said the …
Read more on Business Insider

Templeton utility gets own credit rating
TEMPLETON — With the town's credit rating problems weighing it down, the Templeton Municipal Light and Water Plant went its own way this fall and has now earned its first credit rating, receiving an investment grade rating of A- from Standard & Poor's …
Read more on Worcester Telegram

PunditFact checks claim on Christie, credit rating
And so far they've had seven credit downgrades since the time he's been governor. That doesn't look good." What she's saying represents three different credit rating agencies on Wall Street all moving New Jersey's credit rating down just a little bit …
Read more on WTSP 10 News

Latest Credit Rating News

Claim: New Jersey has had 7 credit downgrades since Chris Christie took office
A state's credit rating is an expert, independent analysis of a state's ability to meet its debt obligations, not unlike a regular person's credit score. Here, we're specifically looking at a state's general obligation bond rating. Its full faith and …
Read more on PolitiFact

California's credit rating upgraded after Prop. 2 passage
A day after voters passed Proposition 2, which creates a “rainy day fund” to cushion the state budget from future economic downturns, major credit-rating house Standard & Poor's on Wednesday upgraded California's general obligation bond rating.
Read more on Sacramento Bee

2014 Fall Net Lease Credit Rating Report

2014 Fall Net Lease Credit Rating Report
Credit Ratings play a large role in the net lease world. A property backed by a tenant with investment grade credit will demand a premium from investors. Some of the most well known investment grade net lease tenants include McDonald's, Walgreen's and …
Read more on GlobeSt.com (blog)

S&P Cuts Finland's Credit Rating One Notch to AA-Plus
The rating firm had earlier indicated a possible rating downgrade, warning in April that it could strip the triple-A rating within the next two years unless “clear signs emerge that Finland's negative economic and fiscal debt trends are being reversed …
Read more on Wall Street Journal

Secret of credit rating

Channel 4 – Dispatches uncovering the secret of credit rating in UK. Showing that you might be among a large number of people who are suffering from poor cre…
Video Rating: 4 / 5

What is a credit rating? Who gives credit ratings and who gets them? What is the difference between a rating for a bank and a country? We explain credit rati…
Video Rating: 5 / 5

Credit Rating Agencies – Need For Reform

1. Crisis – Spotlight on Credit Rating Agencies

“Credit-rating agencies use their control of information to fool investors into believing that a pig is a cow and a rotten egg is a roasted chicken. Collusion and misrepresentation are not elements of a genuinely free market ” – US Congressman Gary Ackerman

The smooth functioning of global financial markets depends, in part, upon reliable assessments of investment risks, and Credit Rating Agencies play a significant role in boosting investor confidence in those markets.

The above rhetoric, although harsh, beckons us to focus our lens on the functioning of credit rating agencies. Recent debacles, as enunciated below, make it all the more important to scrutinize the claim of Credit Rating Agencies as fair assessors.

i) Sub-Prime Crisis: In the recent sub-prime crisis, Credit Rating Agencies have come under increasing fire for their covert collusion in favorably rating junk CDOs in the sub-prime mortgage business, a crisis which is currently having world-wide implications. To give some background, loan originators were guilty of packaging sub-prime mortgages as securitizations, and marketing them as collateralized debt obligations on the secondary mortgage market. The agencies failed in their duty to warn the financial world of this malpractice through a fair and transparent assessment. Shockingly, they gave favorable ratings to the CDOs for reasons that need to be examined.

ii) Enron and WorldCom: These companies were rated investment grade by Moody’s and Standard & Poor’s three days before they went bankrupt. Credit Rating Agencies were alleged to have favorably rated risky products, and in some instances put these risky products together for a fat fee.

There may be other over-rated Enron’s and WorldCom’s waiting to go bust. The agencies need to be reformed, to enable them pin-point such cancer well-in-advance, thereby increasing security in the financial markets.

2. Credit Ratings and Credit Rating Agencies

i) Credit rating: is a structured methodology to rank the creditworthiness of, broadly speaking, an entity, or a credit commitment (e.g. a product), or a debt or debt-like security as also of an Issuer of an obligation.

ii) Credit Rating Agency (CRA): is an institution, specialized in the job of rating the above. Ratings by Credit Rating Agencies are not recommendations to purchase or sell any security, but just an indicator.

Ratings can further be divided into

i) Solicited Rating: where the rating is based on a request, say of a bank or company, and which also participates in the rating process.

ii) Unsolicited Rating: where rating agencies claim to rate an organisation in the public interest.

Credit Rating Agencies help to achieve economies of scale, as they help avoid investments in internal tools and credit analysis. It thereby enables market intermediaries and end investors to focus on their core competencies, leaving the complex rating jobs to dependable specialized agencies.

3. Credit Rating Agencies of note

Agencies that assign credit ratings for corporations include

A. M. Best (U.S.)

Baycorp Advantage (Australia)

Dominion Bond Rating Service (Canada)

Fitch Ratings (U.S.)

Moody’s (U.S.)

Standard & Poor’s (U.S.)

Pacific Credit Rating (Peru)

4. Credit Rating Agencies – Power and Influence

Various market participants that use and/or are affected by credit ratings are as follows

a) Issuers: A good credit rating improves the marketability of issuers, as also pricing, which in turn satisfies investors, lenders or other interested counterparties.

b) Buy-Side Firms : Buy side firms such as mutual funds, pension funds and insurance companies use credit ratings as one of several important inputs to their own internal credit assessments and investment analysis, which helps them identify pricing discrepancies, the riskiness of the security, regulatory compliance requiring them to park funds in investment grade assets etc. Many restrict their funds to higher ratings, which makes them more attractive to risk-averse investors.

c) Sell-Side Firms: Like buy-side firms many sell side firms, like broker-dealers, use ratings for risk management and trading purposes.

d) Regulators: Regulators mandate usage of credit ratings in various forms for e.g. The Basel Committee on banking supervision allowed banks to use external credit ratings to determine capital allocation. Or, to quote another example, restrictions are placed on civil service or public employee pension funds by local or national governments.

e) Tax Payers and Investors: Depending on the direction of the change in value, credit rating changes can benefit or harm investors in securities, through erosion of value, and it also affects taxpayers through the cost of government debt.

f) Private Contracts: Ratings have known to significantly affect the balance of power between contracting parties, as the rating is inadvertently applied to the organisation as a whole and not just to its debts.

Rating downgrade – A Death spiral:

A rating downgrade can be a vicious cycle. Let us visualise this in steps. First, a rating downgrade acts as a trigger. Banks now want full repayment, anticipating bankruptcy. The company may not be in a position to pay, leading to a further rating downgrade. This initiates a death spiral leading to the companys’ ultimate collapse and closure.

Enron faced this spiral, where a loan clause stipulated full repayment in the event of a downgrade. When downgrade did take place, this clause added to the financial woes of Enron pushing it into deep financial trouble.

Pacific Gas and Electric Company is another case in point which was pressurised by aggrieved counterparties and lenders demanding repayment, thanks to a rating downgrade. PG&E was unable to raise funds to repay its short term obligations, which aggravated its slide into the death spiral.

5. Credit Rating Agencies as victims

Credit Rating Agencies face the following challenges

a) Inadequate Information: One complaint which Credit Rating Agencies have is their inability to access accurate and reliable information from issuers. Credit Rating Agencies cry, that issuers deliberately withhold information not found in the public domain, for instance undisclosed contingencies, which may adversely affect the issuers’ liquidity.

b) System of compensation: Credit Rating Agencies act on behalf of investors, but they are in most cases paid by the issuers. There lies a potential for conflict of interest. As rating agencies are paid by those they rate, and not by the investor, the market view is that they are under pressure to give their clients a favourable rating – else the client will move to another obliging agency. Credit Rating Agencies are plagued by conflicts of interest that might inhibit them from providing accurate and honest ratings. Some Credit Rating Agencies admit that if they depend on investors for compensation, they would go out of business. Others strongly deny conflicts of interest, defending that fees received from individual issuers are a very small percentage of their total revenues, so that no single issuer has any material influence with a rating agency.

c) Market Pressure : Allegations that ratings are expediency and not logic-based, and that they would resort to unfair practices due to the inherent conflict of interest, are dismissed by Credit Rating Agencies as malicious because the rating business is reputation based, and incorrect ratings may lower the standing of the agency in the market. In short reputational concerns are sufficient to ensure that they exercise appropriate levels of diligence in the ratings process.

d) Ratings over-emphasised: Allegations float that Credit Rating Agencies actively promote an over-emphasis of their ratings, and encourage corporations to do like-wise. Credit Rating Agencies counter saying that credit ratings are used out of context through no fault of their own. They are applied to the organizations per se and not just the organizations’ debts. A favourable credit rating is unfortunately used by companies as seals of approval for marketing purposes of unrelated products. A user needs to bear in mind that the rating was provided against the stricter scope of the investment being rated.

6. Credit Rating Agencies as Perpetrators

a) Arbitrary adjustments without accountability or transparency: Credit Rating Agencies can downgrade and upgrade and can cite lack of information from the rated party, or on the product as a possible defence. Unclear reasons for downgrade may adversely affect the issuer, as the market would assume that the agency is privy to certain information which is not in the public domain. This may render the issuers security volatile due to speculation.

Sometimes eextraneous considerations determine when an adjustment would occur. Credit rating agencies do not downgrade companies when they ought to. For example, Enron’s rating remained at investment grade four days before the company went bankrupt, despite the fact that credit rating agencies had been aware of the company’s problems for months.

b) Due diligence not performed: There are certain glaring inconsistencies, which Credit Rating Agencies are reluctant to resolve due to the conflicts of interest as mentioned above. For instance, if we focus on Moody’s ratings we find the following inconsistencies.

All three of the above have the same capital allocation forcing banks to move towards riskier investments like corporate bonds.

c) Cozying up to management: Business logic has compelled Credit Rating Agencies to develop close bonds with the management of companies being rated, and allowing this relationship to affect the rating process. They were found to act as advisors to companies’ pre-rating activities, and suggesting measures which would have beneficial effects on the companys’ rating. Exactly on the other extreme are agencies, which are accused of unilaterally adjusting the ratings, while denying a company an opportunity to explain its actions.

e) Creating High Barriers to entry: Agencies are sometimes accused of being oligopolists, because barriers to market entry are high, as the rating business is reputation-based, and the finance industry pays little attention to a rating that is not widely recognized. All agencies consistently reap high profits (Moody’s for instance is greater than 50% gross margin), which indicate monopolistic pricing.

f) Promoting Ancillary Businesses: Credit Rating Agencies have developed ancillary businesses, like pre-rating assessment and corporate consulting services, to complement their core ratings business. Issuers may be forced to purchase the ancillary service, in lieu of a favorable rating. To compound it all, except for Moody’s, all other Credit Rating Agencies are privately held and their financial results do not separate revenues from their ancillary businesses.

7. Some Recommendations

a) Public Disclosures: The extent and the quality of the disclosures in the financial statements and the balance sheets need to be improved. More importantly the management discussion and analysis should require disclosure of off-balance sheet arrangements, contractual obligations and contingent liabilities and commitments. Shortening the time period, between the end of issuers’ quarter or fiscal year and the date of submission of the quarterly or annual report, will enable Credit Rating Agencies to obtain information early. These measures will improve the ability of Credit Rating Agencies to rate issuers. If Credit Rating Agencies conclude that important information is unavailable, or an issuer is less than forthcoming, the agency may lower a rating, refuse to issue a rating or even withdraw an existing rating.

b) Due Diligence and competency of Credit Rating Agencies Analysts: Analysts should not rely solely on the words of the management, but also perform their own due diligence, by scrutinising various public filings, probing opaque disclosures, reviewing proxy statements etc. There needs to be a tighter (or broader) qualification to be a rating agency employee.

c) Abolition of Barriers to Entry: Increase in the number of players may not completely curtail the oligopolistic powers of the well-entrenched few, but at best it would keep them on their toes, by subjecting them to some level of competition, and allowing market forces to determine which rating truly reflects the financial market best.

d) Rating Cost: As far as possible, the rating cost needs to be published. If revealing such sensitive information raises issues of commercial confidence, then the agencies must at least be subject to intense financial regulation. The analyst compensation should be merit-based, based on the demonstrated accuracy of their ratings and not on issuer fees.

e) Transparent rating Process: The agencies must make public the basis for their ratings, including performance measurement statistics, historical downgrades and default rates. This will protect investors and enhance the reliability of credit ratings. The regulators should oblige Credit Rating Agencies to disclose their procedures and methodologies for assigning ratings. The rating agencies should conduct an internal audit of their rating methodologies.

f) Ancillary Business to be independent: Although the ancillary business is a small part of the total revenue, Credit Rating Agencies still need to establish extensive policies and procedures to firewall ratings from the ancillary business. Separate staff and not the rating analysts should be employed for marketing the ancillary business.

g) Risk Disclosure: Rating agencies should disclose material risks they uncover, during the risk rating process, or any risk that seems to be inadequately addressed in public disclosures, to the concerned regulatory authority for further action. Credit Rating Agencies need to be more proactive and conduct formal audits of issuer information to search for fraud, not just restricting their role to assessing credit-worthiness of issuers. Rating triggers (for instance full loan repayment in the event of a downgrade) should be discouraged wherever possible and should be disclosed if it exists.

These measures, if implemented, can improve market confidence in Credit Rating Agencies, and their ratings may become a key tool for boosting investor confidence, by enhancing the security of the financial markets in the broadest sense.

List of resources

i)[http://www.zyen.com/Knowledge/Articles/assessing_credit_rating_agencies.htm]

ii)http://www.chasecooper.com/News-Regulatory-Basel-II-2007-10-01.php

iii)http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0491.2005.00284.x?cookieSet=1&journalCode=gove

iv)http://www.house.gov/apps/list/speech/ny05_ackerman/WGS_092707.html

v)http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2373869.ece

vi)http://www.cfo.com/article.cfm/9861731/c_9866478?f=home_todayinfinance

vii)http://en.wikipedia.org/wiki/Credit_rating_agency

Nagraj Gummala has been in the Banking & Financial services domain for almost 6 years, and is currently working in Cognizant Technology Solutions (Switzerland) as a Senior Business Analyst in the Basel II Risk Management division. He has written several papers on credit risk, and his current area of interest is credit derivatives, with specific focus on pricing of options and futures. Nagraj is a mechanical engineering graduate from IIT, Mumbai, and a management post-graduate from IIM, Bangalore.

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