102. What do you know about foreign credit rating agencies and theirs financial services?

A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.

The debt instruments rated by CRAs include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, and collateralized securities, such as mortgage-backed securities and collateralized debt obligations.

The issuers of the obligations or securities may be companies, special purpose entities, state or local governments, non-profit organizations, or sovereign nations. A credit rating facilitates the trading of securities on a secondary market. It affects the interest rate that a security pays out, with higher ratings leading to lower interest rates. Individual consumers are rated for creditworthiness not by credit rating agencies but by credit bureaus (also called consumer reporting agencies or credit reference agencies), which issue credit scores.

The value of credit ratings for securities has been widely questioned. Hundreds of billions of securities that were given the agencies' highest ratings were downgraded to junk during the financial crisis of 2007–08. Rating downgrades during the European sovereign debt crisis of 2010–12 were blamed by EU officials for accelerating the crisis.

Credit rating is a highly concentrated industry, with the two largest CRAs—Moody's Investors Service and Standard & Poor's (S&P)—controlling 80% of the global market share, and the "Big Three" credit rating agencies—Moody's, S&P, and Fitch Ratings—controlling approximately 95% of the ratings business. S&P and Moody's are based in the US, while Fitch is dual-headquartered in New York City and London, and is controlled by the France-based FIMALAC.

The three largest agencies are not the only sources of credit information. Many smaller rating agencies also exist, mostly serving non-US markets. All of the large securities firms have internal fixed income analysts who offer information about the risk and volatility of securities to their clients. And specialized risk consultants working in a variety of fields offer credit models and default estimates.

Credit rating agencies assess the relative credit risk of specific debt securities or structured finance instruments and borrowing entities (issuers of debt), and in some cases the creditworthiness of governments and their securities. By serving as information intermediaries, CRAs theoretically reduce information costs, increase the pool of potential borrowers, and promote liquid markets. These functions may increase the supply of available risk capital in the market and promote economic growth.

Credit ratings that concern corporations are usually of a corporation's financial instruments i.e. debt security such as a bond, but corporations themselves are also sometimes rated. Ratings are assigned by credit rating agencies, the largest of which are Standard & Poor's, Moody's and Fitch Ratings. They use letter designations such as A, B, C. Higher grades are intended to represent a lower probability of default.

Let’s consider some financial services of “Big Three” credit rating agencies.

*Moody's Corporation (NYSE: MCO) is the parent company of:

-Moody's Investors Service, which provides credit ratings and research covering debt instruments and securities,

-Moody's Analytics, which offers leading-edge software, advisory services and research for credit and economic analysis and financial risk management.

*Fitch Group is comprised of:

-Fitch Ratings, a global leader in credit ratings and research;

-Fitch Solutions, a leading provider of credit market data, analytical tools and risk services;

-Fitch Learning, a provider of learning and development solutions for the global financial services industry;

-Business Monitor International, a provider of country risk and industry analysis specializing in emerging and frontier markets.

Standard & Poor’s is the leading provider of global credit benchmarks and research across industries, asset classes. Across 26 offices around the world, S&P has 1,400+ analysts, managers and economists continually assessing the variables that affect creditworthiness. In frequent dialogue with senior managers and industry leaders, S&P examines everything from the state of an enterprise and its position in its industry, to the state of a region and the globe. Then S&P delivers its credit opinions—on the web, in e-newsletters, in multi-media presentations and on mobile devices.