Credit Ratings

UNDERSTANDING RATINGS

Guide to Credit Rating Essentials What are credit ratings and how do they work?

The origin of Standard & Poor’s Credit Ratings
Standard & Poor’s Ratings Services traces its history back to 1860, the year that Henry Varnum Poor published the History of Railroads and Canals of the United States.

Poor was concerned about the lack of quality information available toinvestors and embarked on a campaign to publicize details of corporate operations. Standard & Poor’s has been publishing credit ratings since 1916, providing investors and market participants worldwide with independent analysis of credit risk.

Introduction Credit ratings are one of several tools that investors can use when making decisions about purchasing bonds and other fixed incomeinvestments. The purpose of this guide is to help explain what credit ratings are, and are not, who uses them, and how they may be useful to the capital markets. The guide provides an overview of different business models and methodologies used by credit rating agencies. It also describes generally how Standard & Poor’s forms its ratings opinions about issuers and individual debt issues, monitors andadjusts its ratings, and studies ratings changes over time.

In addition, the Guide to Credit Rating Essentials points out several key things you should know about credit ratings: > Credit ratings are opinions about relative credit risk. > Credit ratings are not investment advice, or buy, hold, or sell recommendations. They are just one factor investors may consider in making investment decisions. >Credit ratings are not indications of the market liquidity of a debt security or its price in the secondary market. > Credit ratings are not guarantees of credit quality or of future credit risk. If you would like to learn more about credit ratings, additional information is available at www.AboutCreditRatings.com or www.UnderstandingRatings.com.

STANDARD & POOR’S GUIDE TO CREDIT RATINGESSENTIALS | 1

Guide to Credit Rating Essentials
PAGE 3 WHAT ARE CREDIT RATINGS PAGE 5 WHY CREDIT RATINGS ARE USEFUL PAGE 6 WHO USES CREDIT RATINGS PAGE 6 CREDIT RATING AGENCIES PAGE 10 THE ABCs OF RATING SCALES PAGE 11 RATING ISSUERS AND ISSUES PAGE 15 SURVEILLANCE PAGE 15 WHY CREDIT RATINGS CHANGE PAGE 16 HOW STANDARD & POOR’S COMMUNICATES CREDIT RATINGS

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What are credit ratings

Credit ratings are opinions about credit risk. Standard & Poor’s ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Credit ratings can also speak to the credit quality of an individual debt issue, such asa corporate or municipal bond, and the relative likelihood that the issue may default. Ratings are provided by credit rating agencies which specialize in evaluating

credit risk. In addition to international credit rating agencies, such as Standard & Poor’s, there are regional and niche rating agencies that tend to specialize in a geographical region or industry. Each agency applies its ownmethodology in measuring creditworthiness and uses a specific rating scale to publish its ratings opinions. Typically, ratings are expressed as letter grades that range, for example, from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk.

A matter of opinion
Standard & Poor’s ratings opinions are based on analysis by experienced professionals who evaluate andinterpret information received from issuers and other available sources to form a considered opinion. Unlike other types of opinions, such as, for example, those provided by doctors or lawyers, credit ratings opinions are not intended to be a prognosis or recommendation. Instead, they are primarily intended to provide investors and market participants with information about the relative credit risk of...