What is a rating agency?
A credit rating agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves and companies. In some cases, the servicers of the underlying debt are also given ratings. In most cases, the issuers of securities are companies, state and local governments, non-profit organizations, or national governments issuing debt-like securities (i.e., bonds).
Credit ratings are used by investors, issuers, investment banks, broker-dealers, and by governments.
Investment banks and broker-dealers also use credit ratings in calculating their own risk portfolios (i.e., the collective risk of all of their investments).
Larger banks and broker-dealers conduct their own risk calculations, but rely on CRA ratings as a “check” (and double-check or triple-check) against their own analyses.
Credit rating agencies may also play a key role in structured financial transactions. Unlike a “typical” loan or bond issuance, where a borrower offers to pay a certain return on a loan, structured financial transactions may be viewed as either a series of loans with different characteristics, or else a number of small loans of a similar type packaged together into a series of “buckets”.
Ratings agencies assign credit ratings to organisations and governments after calculating the likelihood that they’ll default on their traded debt products (companies issuing debt products pay the agencies for this pleasure).
Ratings are issued in a coded form to allow comparisons between one organisation and another. Matters are complicated by the fact that different ratings agencies use slightly different codes for their ratings. On the whole, however, bonds ranked Baa, BBB, or above are considered ‘investment grade’, meaning investors are likely to get their money back. Anything ranked below this is known as ‘speculative grade’ – repayment is less certain.
Ratings agencies started out rating simple bonds; today, they also rate various exotic credit derivatives, such as collateralised debt obligations (CDOs).
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What does a credit rating analyst do?
You will be surrounded by some of the most insightful credit and analytical professionals in the capital markets
You will be giving credit ratings to issuers through the in depth analysis of several factors.
If you go to work for a ratings agency, don’t expect to find yourself rating companies’ bond issues immediately. Instead, you’re likely to start life as a research assistant, helping an analyst, and working your way up.
Analysts at ratings agencies typically specialise in particular product types. These include corporate finance (company ratings), public finance (local government ratings), infrastructure (utility companies and public project finance), structured finance (rating derivative products), and financial institutions.
A credit rating analyst will take into consideration the issuer’s credit worthiness (i.e., its ability to pay back a loan), and affects the interest rate applied to the particular security being issued. A lot of your day will be spent researching alongside a team and conducting due diligence work.
You will be dealing with debt obligations issued by diverse corporations and governments in many countries.
Your clients will also include leading institutional investors who depend on your teams timely opinions, your grasp of the issues, and your professionalism.
How do I get a graduate scheme / internship / entry level job or career in Ratimgs Agency Analysis?
Obtaining a graduate scheme, internship or entry level role in ratings agency analysis can be very challenging and competitive – though very achievable by getting your application, CV, interview and general approach right. You can guarantee that ninety percent of applicants for ratings agency analysis roles will not know how to apply, so getting your application in the top ten percent makes things a lot more achievable.
Approaching the company in the right way will make all the difference. Combining the right approach with a strong interview (and in some cases assessment centre) writ a strong focused tailored CV will go a long way. Make sure you have gone through the free videos on this sight by entering your name and email address in the top right of this screen underneath the video. Once you have filled this in you will have instant access to everything you need to secure your career in ratings agency analysis.
