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A credit rating agency (CRA, also called a Ratings Service) is a company that assigns credit ratings — rating of the debtor's ability to pay back the debt by making timely interest payments and of the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, the debt instruments, and/or in some cases, the servicers of the underlying debt but not individual consumers.
THE ROLE OF CRAS
Credit rating agencies play an important role in most modern capital markets. The IOSCO
Report on the Activities of Credit Rating Agencies notes that CRAs assess the credit risk of
corporate and government borrowers and issuers of fixed-income securities by analyzing relevant information available regarding the issuer or borrower, its market, and its economic circumstances.
The information processed by the CRA, while generally available to the public where the security is publicly traded, may be costly and time-consuming to collect and analyze. Some CRAs also may obtain non-public information from borrowers and issuers as part of the rating process. The conclusion derived from this analysis is reflected in a credit rating. This rating represents an opinion as to the likelihood that the borrower or issuer will meet its contractual, financial obligations as they become due and is not a recommendation to buy or sell a security. It also does not address market liquidity or volatility risk.
