Credit Rating Agencies and Speedy Payday Loans

companiesCredit ratings mean bond issuers’ trustworthiness. Therefore, the ratings affect interest rates on corporate bonds. Since the ratings show trustworthiness, better ratings mean better financial conditions of companies.

Investors will worry about debt obligations of companies with poor ratings while they will be comfortable to buy bonds of companies with high ratings. Investors will determine corporate bonds as “investment grade” or “speculative grade” based on the bond ratings regulation. According to Cantor, US fund managers prefer bonds with multiple ratings to bonds with single rating. In addition, their preference to higher rating bonds is regardless of trustworthy of the rating while Europeans prefer relatively conservative ratings.

Recently, as globalization of financial markets and transactions continue, investors and regulators start being more skeptical about the integrity in bond ratings process. Their main concern is if credit ratings issued by the large major CRAs are actually trustworthy. This concern is getting more serious after the European financial crisis which started from the collapse in Greek sovereign bonds. The split rating is considered as one of the signs of poor trustworthy of the major CRAs. There are so many different agencies providing people with credits but one of the most popular is Speedy Payday Loans Service via speedy-payday-loans.com.

Researchers have tried to find evidences of the split ratings. According to Ederington, approximately 13 percent of corporate bonds had split ratings during the 1975-1980 periods. Ederington pointed out that the occurrence of split ratings was more likely random because there was not significant discrepancy in the technical standards or rating criteria used by the major CRAs.

According to Dale and Thomas, governmental regulatory bodies such as Basle II or European Capital Adequacy Directive started asking CRAs to apply strict rating methods to eliminate split ratings after the US subprime mortgage crisis. They believed the elimination of split ratings would protect investors.

Canter concluded that split ratings had become a common phenomenon. Livingston supported the conclusion of Canter and showed that Moody’s was more likely to assign conservative ratings than S&P. This was because the Moody’s ratings incorporate not only the probability of default but also the expected recovery rate while the S&P rating reflects strictly a measure of default risk.

Livingston found not only the existence of split ratings but also behaviors of investors to deal with the split ratings. According to Livingston, risk adverse investors were more likely to pick the bonds with Moody’s than those rated aggressively by the S&P. In other words, the risk adverse investors used the split ratings to measure risk of bonds.