Ratings are an important tool to help understand the amount of risk associated with an investment. However, they are not a guarantee of the safety levels. One of the problems is that there are a number of firms which offer ratings and they all have different methods of describing their findings. In addition some of the scales do not appear intuitive. For instance S&P rating of BBB- denotes an investment is better than one with a BB+ rating, yet logic suggests the opposite.
Ratings are also an attempt to predict the "Estimated Default Risk" (EDR) of an investment - that is what the probability of failure is.
The following table attempts to take the main ratings and compare them against each other. You would expect if all three agencies looked at a company they would come up with the same rating level, eg: Company XYZ would have an A from Fitch, AA- from S&P and Aa3 from Moodys. However that isn't always the case and is the reason why DepositRates.co.nz adds all ratings to a company so you can compare them.
Investment grade ratings are considered to be an S&P BBB- or above.
EDR is estimated default risk
Fitch: "+" or "-" may be appended to a rating to indicate the relative position of a credit within the rating category. Such suffixes are not added to ratings in the "AAA" category or to ratings below the 'CCC' category.
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