information of credit rating grades

8/8/2019 Information of Credit Rating grades

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(http://en.wikipedia.org/wiki/Bond_credit_ra

ting)

Bond credit rating

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This article may need to be rewritten entirely to comply with Wikipedia's qualitystandards. You can help. The discussion page may contain suggestions. (October 2009)

In investment, the bond credit rating assesses the credit worthiness of a corporation's debt

issues. It is analogous to credit ratings for individuals and countries. The credit rating is afinancial indicator to potential investors ofdebtsecurities such asbonds. These are assigned by

credit rating agencies such as Moody's, Standard & Poor's, and Fitch Ratings to have letterdesignations (such as AAA, B, CC) which represent the quality of a bond. Bond ratings below

BBB/Baa are considered to be not investment grade and are colloquially calledjunk bonds.

Moody's S&P Fitch

Long-term Short-term Long-term Short-term Long-term Short-term

Aaa

P-1

AAA

A-1+

AAA

F1+

Prime

Aa1 AA+ AA+

High gradeAa2 AA AA

Aa3 AA- AA-

A1 A+A-1

A+F1

Upper medium gradeA2 A A

A3P-2

A-A-2

A-F2

Baa1 BBB+ BBB+

Lower medium gradeBaa2P-3

BBBA-3

BBBF3

Baa3 BBB- BBB-

Ba1

Not prime

BB+

B

BB+

B

Non-investment grade

speculativeBa2 BB BB

Ba3 BB- BB-

B1 B+ B+ Highly speculative


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B2 B B

B3 B- B-

Caa1 CCC+

C CCC C

Substantial risks

Caa2 CCC Extremely speculative

Caa3 CCC- In default with little

prospect for recoveryCaCC

C

C

D /

DDD

/ In default/ DD

/ D

Contents

[hide]

y 1 Credit rating agenciesy 2 Credit Rating Tiers

o 2.1 Investment gradey 3 Criticismy 4 Municipal Bondsy 5 Default Ratesy 6 See alsoy 7 Referencesy 8 External links

[edit] Credit rating agencies

See also: Credit rating agency

Credit rating agencies registered as such with the SEC are known as Nationally Recognized

Statistical Rating Organizations. The following firms are currently registered as NRSROs: A.M.

Best Company, Inc.; DBRS Ltd.; Egan-Jones Rating Company; Fitch, Inc.; Japan Credit RatingAgency, Ltd.; LACE Financial Corp.; Moodys Investors Service, Inc.; Rating and Investment

Information, Inc.; Realpoint LLC; and Standard & Poors Ratings Services. Under the CreditRating Agency Reform Act, an NRSRO may be registered with respect to up to five classes of

credit ratings: (1) financial institutions, brokers, or dealers; (2) insurance companies; (3)corporate issuers; (4) issuers of asset-backed securities; and (5) issuers of government securities,

municipal securities, or securities issued by a foreign government.[1]

S&P, Moody's, and Fitch dominate the market with approximately 90-95 percent of worldmarket share.


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[edit] Credit Rating Tiers

Moody's assigns bond credit ratings ofAaa, Aa, A, Baa, Ba, B, Caa, Ca, C, with WR and NR aswithdrawn and not rated.[2] Standard & Poor's and Fitch assign bond credit ratings of AAA, AA,

A, BBB, BB, B, CCC, CC, C, D.

As of October 16, 2009, there were 4 companies rated AAA by S&P:[3]

y Automatic Data Processing (NYSE:ADP)y Johnson & Johnson (NYSE:JNJ)y Microsoft (NASDAQ:MSFT)y ExxonMobil (NYSE:XOM)

Moody's, S&P and Fitch will all also assign intermediate ratings at levels between AA and CCC(e.g., BBB+, BBB and BBB-), and may also choose to offer guidance (termed a "credit watch")

as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain (neutral).

Moody'sStandard

& Poor's Fitch Credit worthiness

[4][5]

Aaa AAA AAAAn obligor has EXTREMELY STRONG capacity to meet its

financial commitments.

Aa1 AA+ AA+An obligor has VERY STRONG capacity to meet itsfinancial commitments. It differs from the highest rated

obligors only in small degree.

Aa2 AA AA "

Aa3 AA- AA- "

A1 A+ A+

An obligor has STRONG capacity to meet its financialcommitments but is somewhat more susceptible to the

adverse effects of changes in circumstances and economicconditions than obligors in higher-rated categories.

A2 A A "

A3 A- A- "

Baa1 BBB+ BBB+

An obligor has ADEQUATE capacity to meet its financial

commitments. However, adverse economic conditions orchanging circumstances are more likely to lead to a

weakened capacity of the obligor to meet its financial

commitments.Baa2 BBB BBB "

Baa3 BBB- BBB- "

Ba1 BB+ BB+

An obligor is LESS VULNERABLE in the near term than

other lower-rated obligors. However, it faces major ongoinguncertainties and exposure to adverse business, financial, or

economic conditions which could lead to the obligor's


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inadequate capacity to meet its financial commitments.

Ba2 BB BB "

Ba3 BB- BB- "

B1 B+ B+

An obligor is MORE VULNERABLE than the obligors rated

'BB', but the obligor currently has the capacity to meet itsfinancial commitments. Adverse business, financial, or

economic conditions will likely impair the obligor's capacityor willingness to meet its financial commitments.

B2 B B "

B3 B- B- "

Caa CCC CCC

An obligor is CURRENTLY VULNERABLE, and is

dependent upon favourable business, financial, and economicconditions to meet its financial commitments.

Ca CC CC An obligor is CURRENTLY HIGHLY-VULNERABLE.

C C

The obligor is CURRENTLY HIGHLY-VULNERABLE to

nonpayment. May be used where a bankrupcy petition hasbeen filed.

C D DAn obligor has failed to pay one or more of its financial

obligations (rated or unrated) when it became due.

e, p pr ExpectedPreliminary ratings may be assigned to obligations pendingreceipt of final documentation and legal opinions. The final

rating may differ from the preliminary rating.

WRRating withdrawn for reasons including: debt maturity, calls,puts, conversions, etc., or business reasons (e.g. change in

the size of a debt issue), or the issuer defaults.[2]

unsolicited unsolicited This rating was initiated by the ratings agency and notrequested by the issuer.

SD RD

This rating is assigned when the agency believes that the

obligor has selectively defaulted on a specific issue or classof obligations but it will continue to meet its payment

obligations on other issues or classes of obligations in atimely manner.

NR NR NRNo rating has been requested, or there is insufficient

information on which to base a rating.

[edit] Investment grade

Abond is considered investment grade orIG if its credit rating is BBB- or higher by Standard& Poor's or Baa3 or higher by Moody's or BBB(low) or higher by DBRS. Generally they are

bonds that are judged by the rating agency as likely enough to meet payment obligations thatbanks are allowed to invest in them.


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Ratings play a critical role in determining how much companies and other entities that issue debt,including sovereign governments, have to pay to access credit markets, i.e., the amount of

interest they pay on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for issuers' borrowing costs.

Bonds that are not rated as investment-grade bonds are known as high yield bonds or morederisively asjunk bonds.

The risks associated with investment-grade bonds (or investment-grade corporate debt) areconsidered noticeably higher than in the case of first-class government bonds. The difference

between rates for first-class government bonds and investment-grade bonds is called investment-grade spread. It is an indicator for the market's belief in the stability of the economy. The higher

these investment-grade spreads (or risk premiums) are, the weaker the economy is considered.

[edit] Criticism

Until the early 1970s, bond credit ratings agencies were paid for their work by investors whowanted impartial information on the credit worthiness of securities issuers and their particularofferings. Starting in the early 1970s, the "Big Three" ratings agencies (S&P, Moody's, and

Fitch) began to receive payment for their work by the securities issuers for whom they issuethose ratings, which has led to charges that these ratings agencies can no longer always beimpartial when issuing ratings for those securities issuers. Securities issuers have been accused

of "shopping" for the best ratings from these three ratings agencies, in order to attract investors,until at least one of the agencies delivers favorable ratings. This arrangement has been cited as

one of the primary causes of the subprime mortgage crisis (which began in 2007), when somesecurities, particularly mortgage backed securities (MBSs) and collateralized debt obligations

(CDOs) rated highly by the credit ratings agencies, and thus heavily invested in by many

organizations and individuals, were rapidly and vastly devalued due to defaults, and fear ofdefaults, on some of the individual components of those securities, such as home loans and creditcard accounts.

[edit] Municipal Bonds

Municipal bonds, instruments issued by local, state, or federal governments in the United States,have a separate naming/classification system which mirrors the tiers for corporate bonds.

[edit] Default Rates

The historical default rate for municipal bonds is lower than that of corporate bonds. TheMunicipal Bond Fairness Act (HR6308)

[6], introduced September 9, 2008, included the

following table giving bond default rates up to 2007 for municipal versus corporate bonds byrating and rating agency.

Cumulative Historic Default Rates (in percent)


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Rating categoriesMoody's S&P

Municipal Corporate Municipal Corporate

Aaa/AAA 0.00 0.52 0.00 0.60

Aa/AA 0.06 0.52 0.00 1.50

A/A 0.03 1.29 0.23 2.91Baa/BBB 0.13 4.64 0.32 10.29

Ba/BB 2.65 19.12 1.74 29.93

B/B 11.86 43.34 8.48 53.72

Caa-C/CCC-C 16.58 69.18 44.81 69.19

Investment Grade 0.07 2.09 0.20 4.14

Non-Invest Grade 4.29 31.37 7.37 42.35

All 0.10 9.70 0.29 12.98

[edit] See alsoy Credit risky Default (finance)

[edit] References

1. ^http://www.sec.gov/answers/nrsro.htm2. ^ ab"Moody's Rating Symbols & Definitions" (PDF). p. 5.

http://v3.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingsSymbolsand%20Definitions.pdf. Retrieved 2009-09-21. "Withdrawn - WR ... Not Rated -

NR"3. ^http://indexbeating.com/2009/10/22/4-aaas/4. ^http://www.bankersalmanac.com/addcon/infobank/credit_ratings/standardandpoors.aspx5. ^http://www.morganstanleyindividual.com/markets/bondcenter/school/credit/default.asp6. ^http://frwebgate.access.gpo.gov/cgi-

bin/getdoc.cgi?dbname=110_cong_reports&docid=f:hr835.110


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credit rating

assesses(http://in.answers.yahoo.com/question/index?qi

d=20071214065502AAvLMa7)

A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit

ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating

tells a lender or investor the probability of the subject being able to pay back a loan. However, in recent

years, credit ratings have also been used to adjust insurance premiums, determine employment

eligibility, and establish the amount of a utility or leasing deposit.

A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates, or

the refusal of a loan by the creditor.Personal credit ratings

In countries such as the United States, an individual's credit history is compiled and maintained by

companies called credit bureaus. In the United States, credit worthiness is usually determined through a

statistical analysis of the available credit data. A common form of this analysis is a 3-digit credit score

provided by independent financial service companies such as the FICO credit score. (The term, a

registered trademark, comes from Fair Isaac Corporation, which pioneered the credit rating concept in

the late 1950s.)

An individual's credit score, along with his or her credit report, affects his or her ability to borrow money

through financial institutions such as banks.

In Canada, the most common ratings are the North American Standard Account Ratings, also known as

the "R" ratings, which have a range between R0 and R9. R0 refers to a new account; R1 refers to on-time

payments; R9 refers to bad debt.

The factors which may influence a person's credit rating are:

* ability to pay a loan

* interest

* amount of credit used

* saving patterns

Corporate credit rating or

Bond credit rating


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The credit rating of a corporation is a financial indicator to potential investors of debt securities such as

bonds. These are assigned by credit rating agencies such as Standard & Poor's or Fitch Ratings and have

letter designations such as AAA, B, CC.

Credit rating is done by a credit rating agency..check out info about that also

A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt

obligations. In most cases, these issuers are companies, cities, non-profit organizations, or national

governments issuing debt-like securities that can be traded on a secondary market. A credit rating

measures credit worthiness, the ability to pay back a loan, and affects the interest rate applied to loans.

(A company that issues credit scores for individual credit-worthiness is generally called a credit bureau

or consumer credit reporting agency.)

Interest rates are not the same for everyone, but instead are based on risk-based pricing, a form of price

discrimination based on the different expected costs of different borrowers, as set out in their credit

rating. There exist more than 100 rating agencies worldwide.

Credit rating agencies for corporations

* 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)

Uses of ratings by credit rating agencies

Credit ratings are used by investors, issuers, investment banks, broker-dealers, and by governments. For

investors, credit rating agencies increase the range of investment alternatives and provide independent,

easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market,

lowering costs for both borrowers and lenders. This in turn increases the total supply of risk capital in

the economy, leading to stronger growth. It also opens the capital markets to categories of borrower

who might otherwise be shut out altogether: small governments, startup companies, hospitals and

universities.

Ratings use by bond issuers

Issuers rely on credit ratings as an independent verification of their own credit-worthiness. In most

cases, a significant bond issuance must have at least one rating from a respected CRA for the issuance to

be successful (without such a rating, the issuance may be undersubscribed or the price offered by

investors too low for the issuer's purposes). Recent studies by the Bond Market Association note that

many institutional investors now prefer that a debt issuance have at least three ratings. Issuers also use


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credit ratings in certain structured finance transactions. For example, a company with a very high credit

rating wishing to undertake a particularly risky research project could create a legally separate entity

with certain assets that would own and conduct the research work. This "special purpose entity" would

then assume all of the research risk and issue its own debt securities to finance the research. The SPE's

credit rating likely would be very low and the issuer would have to pay a high rate of return on the

bonds issued. However, this risk would not lower the parent company's overall credit rating because the

SPE would be a legally separate entity. Conversely, a company with a low credit rating might be able to

borrow on better terms if it were to form an SPE and transfer significant assets to that subsidiary and

issue secured debt securities. That way, if the venture were to fail, the lenders would have recourse to

the assets owned by the SPE. This would lower the interest rate the SPE would need to pay as part of the

debt offering.

The same issuer also may have different credit ratings for different bonds. This difference results from

the bond's structure, how it is secured, and the degree to which the bond is subordinated to other debt.

Many larger CRAs offer "credit rating advisory services" that essentially advise an issuer on how to

structure its bond offerings and SPEs so as to achieve a given credit rating for a certain debt tranche.

This creates a potential conflict of interest, of course, as the CRA may feel obligated to provide the issuer

with that given rating if the issuer followed its advice on structuring the offering. Some CRAs avoid this

conflict by refusing to rate debt offerings for which its advisory services were sought.

Ratings use by investment banks and broker-dealers

Investment banks and broker-dealers also use credit ratings in calculating their own risk portfolios (i.e.,

the collective risk of all of their investments). Larger banks and broker-dealers conduct their own risk

calculations, but rely on CRA ratings as a "check" (and double-check or triple-check) against their own

analyses.

Ratings use by government regulators

Regulators use credit ratings as well, or permit these ratings to be used for regulatory purposes. For

example, under the Basel II agreement of the Basel Committee on Banking Supervision, banking

regulators can allow banks to use credit ratings from certain approved CRAs (called "ECAIs" or "External

Credit Assessment Institutions") when calculating their net capital reserve requirements. In the United

States, the Securities and Exchange Commission (SEC) permits investment banks and broker-dealers to

use credit ratings from "Nationally Recognized Statistical Rating Organizations" (or "NRSROs") for similar

purposes. The idea is that banks and other financial institutions should not need to keep in reserve the

same amount of capital to protect the institution against (for example) a run on the bank, if the financial

institution is heavily invested in highly liquid and very "safe" securities (such as U.S. government bonds

or short-term commercial paper from very stable companies).

CRA ratings are also used for other regulatory purposes as well. The U.S. SEC, for example, permits

certain bond issuers to use a shorten prospectus form when issuing bonds if the issuer is older, has


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issued bonds before, and has a credit rating above a certain level. SEC regulations also require that

money market funds (mutual funds that mimic the safety and liquidity of a bank savings deposit, but

without FDIC insurance) comprise only securities with a very high rating from an NRSRO. Likewise,

insurance regulators use credit ratings to ascertain the strength of the reserves held by insurance

companies.

Hope this info is useful....

Good luck...!!!!!!


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As a result of Fitch's growth and acquisitions, it today has approximately 1,200 employees,including over700 analysts, in over40 offices and affiliates worldwide. Fitch currently covers

2,300 banks and financial institutions, 1,000 corporations, 70 sovereigns and 26,000 municipalofferings in the United States. In addition, we cover over7,000 issues in structured finance,

which remains our traditional strength.

The Role ofRatingAgencies

Fitch is in the business of publishing research and independent ratings and credit analysis ofsecurities issued around the world. A rating is our published opinion as to the creditworthiness of

a security distilled in a simple, easy to use grading system ("AAA" to "DDD"). Explanatoryinformation is typically provided with each rating.

Rating agencies gather and analyze a variety of financial, industry, market and economic

information, synthesize that information and publish independent, credible assessments of thecreditworthiness of securities and issuers thereby providing a convenient way for investors to

judge the credit quality of various alternative investment options. Rating agencies also publishconsiderable independent research on credit markets, industry trends and economic issues of

general interest to the investing public.

By focusing on credit analysis and research, rating agencies provide independent, credible and

professional analysis for investors more efficiently than the investors could perform that analysisthemselves.

Currently, we have over 3,200 institutional investors, financial institutions and government

entities subscribing to our research and ratings and thousands of investors and other interestedparties that access our research and ratings through our free website and other published sources

and wire services such as Bloomberg, Business Wire, Dow Jones, Reuters andTh

e Wall StreetJournal.

Ratings are used by a diverse mix of both short-term and long-term investors as a common

benchmark to grade the credit risk of various securities.

In addition to their ease of use, efficiency and wide availability, we believe that credit ratings are

most useful to investors because they allow for reliable comparisons of credit risk across diverseinvestment opportunities.

Credit ratings accurately assess credit risk in the overwhelming majority of cases. Credit ratings

have proven to be a reliable indicator for assessing the likelihood that a security will default.Fitch's most recent corporate bond and structured finance default studies are summarized below.


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The performance of ratings by the three NRSROs is quite similar. We believe this similarity

results from the reliance on fundamental credit analysis by the NRSROs and the similarmethodology and criteria of all of the NRSROs.

Through the years, NRSRO ratings also have been increasingly used in safety and soundness and

eligible investment regulations for banks, insurance companies and other financial institutions.While the use of ratings in regulations has not been without controversy, we believe that

regulators rely on NRSRO ratings for the same reason that investors do: ease of use, wide spread

availability and proven performance over time.

Although other methods can be used to assess the creditworthiness of a security, such as the useof yield spreads and price volatility, we believe that such methods, while valuable, lack the

simplicity, stability and track record of performance to supplant ratings as the preferred methodused by investors to assess creditworthiness.

However, we also believe that the market is the best judge of the value of ratings. We believe

that if ratings begin to disappoint investors they will stop using them as a tool to assess creditrisk and the ensuing market demand for a better way to access credit risk will rapidly facilitate

the development of new tools to replace ratings and rating agencies.

The CreditRatingProcess

We believe that for the most part credit rating agencies have adequate access to the informationthey need to form an independent and objective opinion about the creditworthiness of an issuer.

While the rating agency exemption under Regulation FD helps to promote an uninhibitedresponse to requests for information, the nature and level of nonpublic information provided to

Fitch varies widely by company, industry and country. Nonpublic information frequently


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includes budgets and forecasts, as well as advance notification of major corporate events such asa merger. Nonpublic information may also include more detailed financial reporting.

While access to nonpublic information and senior levels of management at an issuer is

beneficial, an objective opinion about the creditworthiness of an issuer can be formed based

solely on public information in many jurisdictions. Typically, it is not the value of any particularpiece of nonpublic information that is important to the rating process, but that access to suchinformation and senior management can assist us in forming a qualitative judgment about a

company's management and prospects.

It is also important that rating agencies not be inhibited in requesting information and thereaftersubjecting that information to vigorous internal analysis and discussion. In that connection it is

critical that the courts afford shield law and journalist privilege protection to rating agencies sothat rating agencies are not unduly burdened by third-party discovery and the confidentiality of

their deliberative processes are respected.

Another factor critical to the adequate flow of information to the rating agencies is theunderstanding that information can be provided to a rating agency without necessitating anintrusive and expensive verification process that would largely if not entirely duplicate the work

of other professionals in the issuance of securities. Thus rating agencies do not perform duediligence and assume the accuracy of the information that is provided to them by issuers and

their advisors. Since rating agencies are part of the financial media, we believe that our ability tooperate on this assumption, and to exercise discretion in deciding how to respond to

informational concerns, is protected by the First Amendment.

Conflicts ofInterest

Fees. We do not believe that the fact that the issuer pays a fee to Fitch creates an actual conflictof interest, i.e., a conflict that impairs the objectivity of Fitch's judgment about creditworthiness

reflected in Fitch ratings. Rather, for the reasons stated below and based on our experience, it ismore appropriately classified as a potential conflict of interest, i.e., something that should be

disclosed and managed to assure that it does not become an actual conflict.

By way of context, our revenue comes from two principal sources: the sale of subscriptions forour research and fees paid by issuers for the analysis we conduct with respect to ratings. In this

we are similar toother members of the media whichderive revenue from subscribers andadvertisers that includecompanies that they cover. Like other journalists, we emphasize

independence and objectivitybecause our independent, unbiased coverage of the companies and

securities we rateis important to our research subscribers and the marketplace in general.

Fitch goes to great efforts to assure that our receipt of fees from issuers does not affect oureditorial independence. We have a separate sales and marketing team that works independently

of the analysts that cover the issuers. In corporate finance ratings, analysts generally are notinvolved in fee discussions. Although structured finance analysts may be involved in fee

discussions, they are typically senior analysts who understand the need to manage the potentialconflict of interest.


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We also manage the potential conflict through our compensation philosophy. The revenue Fitchreceives from issuers covered by an analyst is not a factor in that analyst's compensation. Instead,

an analyst's performance, such as the quality and timeliness of research, and Fitch's overallfinancial performance determine an analyst's compensation. Similarly, an analyst's performance

relative to his or her peers and the overall profitability of Fitch determine an analyst's bonus. The

financial performance of analysts' sectors or groups do not factor into their bonuses.

Fitch does not have an advisory relationship with the companies it rates. It always maintains full

independence. Unlike an investment bank, our fees are not based on the success of a bond issueor tied to the level of the rating issued. The fee charged an issuer does not go up or down

depending on the ratings assigned or the successful completion of a bond offering.

Our fee is determined in advance of the determination of the rating and we do not charge a feefor a rating unless the issuer agrees in advance to pay the fee. While we do assign ratings on an

unsolicited basis, we do not send bills for them. Any issuer may terminate its fee arrangementwith Fitch without fear that its rating will be lowered, although we do reserve the right to

withdraw a rating for which we are not paid if there is insufficient investor interest in the ratingto justify continuing effort to maintain it.

Why Issuers RequestOurRatings. In the case of Fitch's corporate finance ratings, over 95% ofthe companies and financial institutions that we rate requested our rating (or the rating was

requested by the company's financial advisors or investors) and agreed to pay our fee eventhough the entity is almost always already rated by both Moody's and S&P.

In structured finance, which accounts for over50% of our revenue, we are frequently one of two

rating agencies rating a security chosen by the issuer from among the three agencies.

In structured finance, issuers select us to rate securities because of the excellent reputation wehave built for transparent, high-quality analysis, extensive research and comprehensive and

timely surveillance. In the case of corporate finance ratings, we believe that companies, financialadvisors and investors request a Fitch rating, and issuers agree to pay us to conduct our analysis,

because of the equally strong reputation of our corporate and financial institutions research.

Issuers chose to use and pay for a Fitch rating because our independent research improves

investor awareness, increases the liquidity of the issuer's securities and reduces the cost of funds.In corporate finance ratings, academic research also supports the value of a third rating showing

that companies rated by a third rating agency improve their cost of funding.1

Disclosure.Charging a fee to the issuer for the analysis done in connection with a rating dates

back to the late 1960s. It is widely known by investors. Fitch firmly believes that the disclosure

of the arrangement by which an issuer pay fees to Fitch in connection with Fitch's ratings of theissuer is appropriate. Accordingly, Fitch currently discloses that it receives fees from issuers in

connection with our ratings as well as the range of fees paid. This has been our practice for manyyears. We do not believe, however, that it is necessary or appropriate to provide disclosure of the

specific fees or any more extensive financial disclosure. We believe that the specific fees wecharge and the revenue we derive from other sources are proprietary and if known by our


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competitors, both of whom possess dominant market power in certain markets, would cause uscompetitive injury. We believe that the far more important disclosure is that the fee arrangement

exists and the range of those fees.

RatingAdvisory Services. We also understand that concerns have been expressed that additional

conflict of interest issues are posed by rating agencies providing consulting or ratings advisoryservices.

By way of background,Fitch only recently introduced our Ratings Assessment Service. Since theintroduction of this service in May of this year, we have performed only two assessments.

Traditionally, Fitch received inquiries from time to time from issuers and their financial advisorsabout the impact potential major corporate events such as acquisitions, recapitalizations and

major asset sales might have on the issuer's rating. As with all reasonable questions raised by anissuer, the Fitch analyst receiving the inquiry would discuss the matter internally and attempt to

provide the issuer with an indication of the likely effect the event would have on the rating. We

considered this type of feedback to be a routine part of the rating process. The feedback wasinformal and uncompensated.

Over the past few years, issuers and their financial advisors frequently asked Fitch to providethem with a more definitive response to inquiries regarding the rating effect of major corporate

events. Frequently, they also would request our views on multiple scenarios relating to thesemajor events. These inquiries began to become more demanding in terms of the time

commitment required to address the inquiries.

Both of our competitors (S&P and Moody's) have for sometime been offering a similar paidservice to issuers. Several issuers and major financial advisors also told us that we were at a

competitive disadvantage because we did not offer a ratings assessment service. After significantinternal discussion, we launched our new service in reaction to issuer demand for more certainty

in the process of assessing the rating impact of a major corporate event.

Fitch does not tell issuers what they have to do to get a specific rating. The engagement letter

used for this service also asks the issuer to acknowledge that Fitch is not acting as its advisor inthis process and that a material change in the information provided, transaction structure,

economic environment or business conditions of the issuer may affect the final rating.

Based upon these procedures and the clear understanding of the issuer that the final rating canchange if circumstances change, Fitch believes that it will be at complete liberty to issue a

different final rating if circumstances change between the issuance of the conditional rating andthe final rating.

We are, however, mindful of the need to assure the independence of our ratings and we welcome

any suggestions as to how we might improve the rating assessment service to avoid or mitigateany potential conflicts of interest.

CompetitionandBarriers to Entry


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Fitch believes that our emergence as a global, full service rating agency capable of competingagainst Moody's and S&P across all products and market segments has created meaningful

competition in the ratings market for the first time in years. Fitch's challenge to theMoody's/S&P monopoly has enhanced innovation, forced transparency in the rating process,

improved service to investors and created much needed price competition.

Academic research confirms our belief that innovations in the ratings industry have often "beeninitiated by the smaller rating firms [Fitch and its legacy firms], with the larger two [Moody's

and S&P] then following."2

At Fitch, we are particularly proud of the work that we have done inthe development of innovative methodologies to analyze new structured finance securities. These

innovations in the securities markets have had substantial economic benefits. For instance,academic research has found that securitization has had a positive impact on both the availability

and cost of credit to households and businesses.3

Fitch firmly believes in the power of competition. We also believe that there is always a demandfor insightful, independent credit research. The NRSRO system is designed, appropriately in our

view, to assure that recognized organizations possess the competence to develop accurate andreliable ratings and protect against the establishment of rating organizations that would

haphazardly issue investment grade ratings to low quality securities at any time. Without asystem to recognize rating organizations for their competence, many important capital adequacy

and eligible investment rules used in financial institution regulation would be ineffective.

We believe that the SEC should formalize the process by which a rating organization is

recognized. The criteria for recognition should include an evaluation of the organization'scapability, resources and independence, use of the organization's ratings by market participants

and studies of the performance of the ratings over time. We believe these are the reasons thatmarket participants widely use NRSRO ratings, whether or not they are subject to regulations

that refer to ratings. We also believe that the SEC should consider continuing the practice oflimited recognition that acknowledges the special expertise of smaller organizations in selected

areas of specialty such as the recognition of IBCA and BankWatch for their expertise in ratingbanking and financial institutions.

While the NRSRO system is often cited as a barrier to entry for new rating organizations, we

believe that the debate over the NRSRO system ignores the single most important barrier to entryin the ratings market: the Moody's/S&P monopolies.

Moody's and S&P are a dual monopoly, each possessing separate monopoly power in a market

that has grown to demand two ratings. Each engages in practices designed to perpetuate itsmarket dominance and extend it to otherwise competitive markets such as structured finance. As

we have publicly stated for more than a year, through their discriminatory practice known as"notching", Moody's and S&P are successfully altering competition in the commercial andresidential mortgage-backed securities market by leveraging their monopoly position in other

markets.

No matter what the ultimate outcome is in the debate concerning the NRSRO system, newentrants will have limited success competing with Moody's and S&P until their anticompetitive


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behavior is appropriately addressed. Despite a decade of effort, multiple mergers and millions ofdollars of expense devoted to our effort to become fully competitive with Moody's and S&P,

Fitch may still be marginalized in formerly competitive markets because of the monopoly powerMoody's and S&P wield.

If the SEC wishes to address barriers to entry in the ratings market, the Commissioners shouldconsider enacting rules prohibiting anticompetitive conduct by NRSROs and precludingNRSROs from discriminating against the ratings by other NRSROs for the purpose of preserving

market share.

Please feel free to contact me here at Fitch if you have any questions regarding Fitch or thisstatement.

Very truly yours,

Stephen W. Joynt

President and Chief Executive Officer

________________________

1 Jeff Jewell and Miles Livingston ,The Impact Of the Third Credit Rating On the Pricing of Bonds, Journal

of Fixed Income, December 2000; see also Jeff Jewell and Miles Livingston, The Impact of Fitch's Bond

Ratings, March 1998 (unpublished study).

2 Lawrence J. White, The Credit Rating Industry: An Industrial Organization Analysis, June 2001 (paper

presented at the conference on "Rating Agencies in the Global Financial System", presented at the

Stern School of Business, New York University, June 1, 2001.

3 Mark M. Zandi, The Securitization of America, Regional Financial Review, February 1998; Ali Anari,

Donald R. Fraser and James W. Kolari, The Effects of Securitization on Mortgage Market Yields: A

Cointegration Analysis, Real Estate Economics, 1998.

information of credit rating grades

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