Where do I compare Moody's ratings with S&P?

Credit ratings that concern corporations are usually of a corporation's financial instruments i.e. debt security such as a bond, but corporations themselves are also sometimes rated. Ratings are assigned by credit rating agencies, the largest of which are Standard & Poor's, Moody's and Fitch Ratings. They use letter designations such as A, B, C. Higher grades are intended to represent a lower probability of default.

Agencies do not attach a hard number of probability of default to each grade, preferring descriptive definitions such as: "the obligor's capacity to meet its financial commitment on the obligation is extremely strong," or "less vulnerable to non-payment than other speculative issues ..." (Standard and Poors' definition of a AAA rated and a BB rated bond respectively).[8] However, some studies have estimated the average risk and reward of bonds by rating. One study by a rating service (Moody's)[9][10] claimed that over a "5-year time horizon" bonds it gave its highest rating (Aaa) to had a "cumulative default rate" of just0.18%, the next highest (Aa2)0.28%, the next (Baa2)2.11%,8.82% for the next (Ba2), and31.24% for the lowest it studied (B2). (See "Default rate" in "Estimated spreads and default rates by rating grade" table to right.) Over a longer time horizon it stated "the order is by and large, but not exactly, preserved".[11]

Estimated spreads and default rates by rating gradeRatingBasis Point spread[12][13][14]Default rate[9][10]AAA/Aaa 43 0.18% AA/Aa2 73 0.28% A 99 n/a BBB/Baa2 166 2.11% BB/Ba2 299 8.82% B/B2 404 31.24% CCC 724 n/a Sources: Basis spread fromFederal Reserve Bank of New York Quarterly Review, Summer-Fall1994"; Default rate from study by Moody's investment service

Another study in Journal of Finance calculated the additional interest rate or "spread" corporate bonds pay over that of "riskless" US Treasury bonds, according to the bonds rating. (See "Basis point spread" in table to right.) Looking at rated bonds from1973–89, the authors found a AAA rated bond paid only43 "basis points" (or43/100th of a percentage point) over a Treasury bond (so that it would yield3.43% if the Treasury yielded3.00%). A CCC-rated "junk" (or speculative) bond on the other hand, paid over4% (404 basis points) more than a Treasury on average over that period.[12][13]

Different rating agencies may use variations of an alphabetical combination of lower and upper case letters, with either plus or minus signs or numbers added to further fine tune the rating (see colored chart). The Standard & Poor's rating scale uses upper case letters and pluses and minuses.[15] The Moody's rating system uses numbers and lower case letters as well as upper case.

While Moody's, S&P and Fitch Ratings controlling approximately95% of the credit ratings business,[16] they are not the only rating agencies. DBRS's long-term ratings scale is somewhat similar to Standard & Poor's and Fitch Ratings with the words high and low replacing the + and −. It goes as follows, from excellent to poor: AAA, AA(high), AA, AA(low), A(high), A, A(low), BBB(high), BBB, BBB(low), BB(high), BB, BB(low), B(high), B, B(low), CCC(high), CCC, CCC(low), CC(high), CC, CC(low), C(high), C, C(low) and D. The short-term ratings often maps to long-term ratings though there is room for exceptions at the high or low side of each equivalent.[17]

S&P, Moody's, Fitch and DBRS are the only four ratings agencies that are recognized by the European Central Bank for the purposes of determining collateral requirements for banks to borrow from the central bank. The ECB uses a first, best rule among the four agencies that have the designated ECAI status.[18] That means that it takes the highest rating among the four - S&P, Moody's, Fitch and DBRS - to determine haircuts and collateral requirements for borrowing. Ratings in Europe have been under close scrutiny, particularly the highest ratings given to countries like Spain, Ireland and Italy because it affects how much banks can borrow against sovereign debt they hold.[19]

A. M. Best rates from excellent to poor in the following manner: A++, A+, A, A−, B++, B+, B, B−, C++, C+, C, C−, D, E, F, and S. The CTRISKS rating system is as follows: CT3A, CT2A, CT1A, CT3B, CT2B, CT1B, CT3C, CT2C and CT1C. All these CTRISKS grades are mapped to one-year probability of default.