The Moody’s Corporation was established in 1909 by John Moody. Its main function is ranking the credit worthiness of different borrowers. This is done with the use of standardised ratings scale.It also carries out financial research and analysis of different corporate bodies.
Moody’s Corporation offers three types of credit ratings each of which may be explained under the following heads:
Long Term Obligation Ratings
This is the process of rating the credit risk of fixed income obligations that have maturity of at least one year. The credit ratings depict the probability of default in such a case and the financial loss that would be incurred as a result of this.
The obligations are categorised into three:
The investment grade is further classified into the following:
Aaa: Obligations with minimum credit risk and best quality
Aa1, Aa2, Aa3: Obligations with low risk and good quality
Baa1, Baa2, Baa3: Obligations of medium quality and moderate risk
This can be further classified into:
Ba1, Ba2, Ba3 : Obligations with speculative elements and rank the highest in terms of credit risk
B1, B2, B3: Speculative Obligations with high credit risks.
Caa1, Caa2, Caa3: High credit risk and poor quality obligations.
Ca: Speculative Obligations with chances of retrieval of principal along with interest
C: Low grade obligations with almost noi chance of recovery of either principal or interest
P: Provisional Rating is done for these obligations
WR: Withdrawn rating is done for these obligations
NR: Thse obligations are not rated
Short Term Taxable Ratings
This type of rating reflects the capacity of issuers to clear off short term financial obligations. The issuers, short term debt instruments or the short term programs may be rated. The maturity period of these short term obligations is not more than 13 months.
Short Term Tax Exempt Ratings
This is the process of rating individuals on their capacity to clear off short term obligations. There is a different section for short term municipal bonds.