rating

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This is the index used to classify a company, institution or financial products according to their ability to meet their payment obligations (debt). Usually, a scale of letters to indicate the ability to pay is used.

During the qualification process quantitative and qualitative factors are taken into account related to both the institution or company and the environment in which it operates. Each rating agency may have different criteria (quantitative and qualitative) that apply following a proprietary method to give an opinion or rating.

You should always keep in mind that a company or institution has a high human factor involved in performance, so the score or risk assessment results in an opinion that the investor guides but does not assure the future of your investment.

For example, Standard and Poor´s uses the following rating scale: AAA – It means an extremely strong capacity to meet financial commitments. It is the highest rating.


AA

  • It means very strong capacity to meet financial commitments.



A

  • It means strong ability to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
  • It means adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
  • It is considered the lowest level within the investment grade category by the participants in the market.

BB +

  • It is considered the highest rating within the speculative grade category by the participants in the market. 


BB

  • Less vulnerable in the short-term but faces major uncertainty regarding adverse business conditions, financial and economic. 


B

  • More vulnerable to adverse business conditions, financial and economic but currently has the capacity to meet its financial commitments. 

CCC

  • It means currently vulnerable and dependent on favorable conditions for business, finance and economy to meet its financial commitments. 


CC

  • It means currently highly vulnerable.



C

  • It means currently its obligations and other defined circumstances are extremely vulnerable.



D
  • It means default on its financial obligations. In the case of the rating agency Fitch, the credit risk rating would be as follows: 


AAAfm

  • The highest protection against losses credit risk associated. 


AAfm

  • Very high protection against losses associated with credit risk. 


Afm

  • High protection against loss associated with credit risk. 


fm

  • Sufficient protection against loss associated with credit risk.


Bbfm

  • Low protection against losses associated with low credit risk. 


Bfm

  • Very low protection against losses associated with credit risk. 


Cfm

  • Highly unstable protection against losses associated with credit risk. As for the risk classification for the market, it´s broken down into: 


M1
  •  The lowest sensitivity to changes in market conditions. 


M2 

  • Moderate or low sensitivity to changing market conditions. 


M3

  • Moderate sensitivity to changing market conditions. 


M4
  • Moderate to high sensitivity to changing market conditions.


M5

  • High sensitivity to changing market conditions. 


M6

  • Very high sensitivity to changes in market conditions. On the other hand, the rating agency Moody´s uses the following classification: 

Aaa

  • Considered of the highest quality with minimal credit risk. 


Aa

  • Considered of high quality and are subject to very low credit risk.


A
  • Considered upper-medium grade and are subject to low credit risk. 


Baa

  • Subject to moderate credit risk. Are considered medium grade and as such may possess certain speculative characteristics. 


Ba

  • Considered to have speculative elements and are subject to significant credit risk. 


B

  •  Considered speculative and are subject to high credit risk. 


Caa

  • Considered bad situation and are subject to very high credit risk. 


Ca

  • These are highly speculative and have some prospect of being able to recover both capital and interest. 


C

  • Is the lowest rating class and usually failing, with little prospect of recovery of principal and interest. The higher the score the lower the interest that is forced to pay for the financial product, company or institution qualified.

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