Isn‘t that the same as a Moody’s or S&P rating?
Not at all. Rating agencies base their rating on a variety of factors, most significantly the balance sheet and income statement of a firm. That means the ratings are inherently backward looking, because they are based on events that have already happened, not on what will happen. Even worse, accounting statements are issued only quarterly, and the numbers themselves can vary depending on what management chooses to show. Even then, the rating itself is decided on by a small group of people at the rating agency, who may not be the best judge of a company’s prospects. Finally, a rating agency issues just a single rating for each bond. This rating does not break out the bond’s likelihood of default as a function of time, even if a company’s prospects are very good for the next year, but may worsen significantly later on (perhaps due to markets changing, patents expiring, key executives retiring, etc.). The single ratings themselves are also very broad brush, so many companies can have the
