Financial Analysis : Credit Rating Agencies

In this essay I shall be discussing the factors which influence the level of and access to unsecured debt held by households.

Creditors normally focus on the liquidity or solvency of the borrower in terms of current ratio and quick ratio, which indicate whether the company has enough working capital to cover the short-term debts. Myer will enter into a syndicated facility agreement to refinance the existing borrowings of the Myer Group. Besides, creditors are interested in the business risks the company might undertake, which indicate the possibility that the company might be unable to pay back the long-term liability in the future. From this point, the expectation on high return on investment and high profitability in the long run make the creditor’s interest aligned with shareholders’ value.

In the time between the end of World War II and the early 2000s, the ways consumers used debt changed significantly. However, one thing remained clear, borrowing became the new lifestyle that most Americans adopted. Borrowing allowed the average working and middle class person to purchase homes and the items that filled their interiors. It also became the fuel to a resurrecting economy. The trust between borrowers and lenders has encouraged the stimulation of the economy. Because of this, debt has played a crucial role in American history.

When someone has their background checked by horrible credit, chances are they will pay a much higher interest rate for an auto, contracts, et cetera. Exactly when applying for charge cards with poor credit you will probability be declined make your shots of getting approved impressively more troublesome. At any rate, what you have is the capacity to rebuild your FICO score?

The oldest credit rating agency, Moody, was founded 108 years ago in 1909 by John Moody. This corporation was established when the popularity of corporate bonds grew. John Moody recognized that his investors needed trustworthy information about the issuer's’ creditworthiness. This corporation is composed of two business units, Moody’s investors service being one and Moody’s KMV, now it’s called Moody’s analytics being another. Moody’s investors service make profits by rating bonds. Moody’s analytics basically did the same job as Moody’s KMV. They both provided credit analysis tools and financial modeling and consulting. Additionally, they analyze the risk for the government and corporations. They also made money from charging fees from those

Jules Kroll is planning to enter into the ratings industry. To determine whether it is a good idea and a good time for him to enter into the new business, we project the 5-year NPV for KBRA and apply SWOT analysis to KBRA. The 5-year projected NPV is $341.1 million, a positive number. It is a good time and a good idea for KBRA to enter the business. However, through our SWOT analysis, it would be difficult for KBRA to become competitive in a short time. Thus we suggest it add a credit rating division into the company to make attempts to it but not start up a

So it is also attractive for Jules Kroll to take this opportunity to enter the credit rating industry. In addition, the “issuer pays” model, which used by the big three rating agencies, lets companies shop around for the best ratings, putting pressure on the agencies to inflate their grades. As a result, it is very difficult to argue that they can adequately represent the users’ side. Therefore, Jules Kroll wants to use another model that can assign unbiased and reliable ratings.

Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings are still suffering from their role in the crisis. These credit-rating companies would mark many bad investments with “AAA” ratings even though more than 70 percent of their collateralized debt obligations (CDOs) defaulted. They would ignore the major risks and marketed the risky CDOs because they were being paid to get the deals (Krantz, 2013). To decrease the probability of inappropriate ratings from happening again, there should be more regulations and monitorizations of all the credit-rating agencies. Revenues of credit-rating agencies should also not be allowed to be based on how many investments they can rate highly. Furthermore, before the crisis, investors would rely too greatly on ratings instead of doing their own due diligence. Therefore, investors should also rely less on the

Now lets apply this to underdeveloped poor countries. As the country struggles to get ahead, international lenders drown them in their overwhelming debt, preventing them from every rising to the surface.

When you deal with any lender, it is of great advantage to have a good or very good credit rating. Suppose you know that your mortgage will have to be renewed in two years. You may need to either repair your credit and/or improve your credit scores.

The rating agencies Standard & Poor's, Moody's and Fitch compose an incredibly powerful oligopoly, which evaluates arbitrary, scores uncontrollably and rules authoritarian over the financial system of the planet.

However, the issuance of debt can have signalling effects for investors. Generally, when firms issue debt it signals to investors that the firm is in a good financial situation as the firm is able to undertake repayments of future interest.

According to Malaysia Sukuk Market Handbook it said that credit rating especially focus in credit risk, analyse situation where one financial obligation or commitment may become lost based on a change in capacity and obligation underwriter readiness meet the financial commitment on time and in line with transaction terminology. As risk payment measurement refuse, sukuk consider place various sukuk type in market in their relative default risk matter.

When a company goes under, it drifts with many of its creditors. The term ‘credit’ is used to describe someone’s financial standing, or to describe some form of financial accommodation. In this assignment we are concerned with credit in the sense of financial accommodation, which is fixed and floating charges. A creditor is someone who borrows money and repays this at a later date with interest and charges. Moreover, the Consumer Credit Act 1974 was created to regulate credit agreements. Later, the 2006 Act, aimed to create an ombudsman scheme, which would permit borrowers to challenge their case in court, enchase the powers of the Office of Fair Trading and allow debtors to confront unfair relationship with

CRAs are like a marking system that is designed to keep the interested/related parties informed with relevant information. It helps investors to decide how risky it is to invest in certain security or country. It gives indication to buyer of securitised debt how likely they are to be paid back. Although investors collect their own set of information about borrowers and impose requirements, they also rely on these ratings to determine the appropriate securities for their investment portfolios because it is believed that CRAs crucial role is to provide ‘gatekeepers’ to public security markets and act as a neutral third-parties providing independent, objective assessment of the creditworthiness of investments offered, firms and