An external credit rating agency conducts due diligence on bond issuers on behalf of investors. When a company or government entity wants to issue a bond, it will typically approach one or more of the external credit rating agencies and provide access to its business books, including balance sheets, cash flow statements and projections. The company also will supply information about its overall financial stability and liquidity. The credit rating agency will assign a rating, or grade, to the bond issuer's economic resiliency and its ability to repay its obligations.
A.M. Best
A.M. Best is headquartered in Oldwick, New Jersey. It specializes in rating insurance companies for liquidity and financial strength. Its financial strength ratings range from "A++" (superior) to "F" (in liquidation). Its long-term credit ratings range from "aaa" (exceptional) to "d" (in default).
Standard & Poor's
Standard & Poor's, a subsidiary of McGraw-Hill, rates bonds for a variety of corporations and government entities. Ratings range from AAA (exceptionally strong) to D (in default and expected to remain in default).
Fitch Ratings
Fitch Ratings is a British company. Its ratings range from AAA (best) to D (in default) for long-term credit ratings and from F1+ (best) to D for short-term bonds.
Moody's Investors Service
Moody's Investors Service provides a variety of research services to the financial markets, including external credit ratings. Ratings for long-term credit range from Aaa (superior) to C (substantial outside support required).
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