What is the rating?

The concept of rating refers to the representative index of the level of risk with which the debt issues of companies are rated. To make this judgment, they take as a reference both the historical valuation and the expectations that are expected in the future.

The assessment carried out on the financial risk the obligations of a company will depend mainly on the leverage financial stability of the benefits presented, the profitability of the assets and the size of the company.

Características del rating

Therefore, a more specific definition of rating could be the rating of the solvency of a company or territory to meet their corresponding obligations or their ability to pay.

The one in charge of carrying out the rating rating is a specialized company that is called a rating agency. Among other things, it deals with assessing an organization's debt issues based on its ability to pay in different time periods, its vulnerability to certain external dangers that affect its income and financial solvency.

The rating achieved by a company or territory will have consequences for it since it will influence the interest rates to which you can place your debt issues to investors. When the rating is low, investors will require higher interest rates on the debt in order to hedge their risks.

There are more than 74 rating agencies, but the sector is controlled by three main companies that dominate around 90% of the market. These are Moody's, Standard & Poor's, and Fitch.

Rating types

The rating can be structured in two categories:

  • Speculative Grade: refers to debt issues that present a greater risk of default on future obligations.
  • Investment Grade: in this case the debt issues carried out by an organization compared to the payment capacity are defined as adequate.

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