Are Credit Ratings absolute measures of default probability?
Since there are future events and developments that cannot be foreseen, the assignment of credit ratings is not an exact science. For this reason, Standard & Poor’s ratings opinions are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or particular debt issue will default. Instead, ratings express relative opinions about the creditworthiness of an issuer or credit quality of an individual debt issue, from strongest to weakest, within a universe of credit risk. The likelihood of default is the single most important factor in our assessment of creditworthiness. For example, a corporate bond that is rated ‘AA’ is viewed by Standard & Poor’s as having a higher credit quality than a corporate bond with a ‘BBB’ rating. But the ‘AA’ rating isn’t a guarantee that it will not default, only that, in our opinion, it is less likely to default than the ‘BBB’ bond.
Related Questions
- If the energy efficiency ratings of an appliance meet the requirements for the federal tax credit for energy efficiency, can I assume it meets requirements of the SavingsCentral program?
- What is the outlook for the regulation of the credit default swap market?
- Do Regulations Based on Credit Ratings Affect a Firms Cost of Capital?
