Credit rating agencies: a primer for corporate treasurers

Although the credit ratings industry originated in the 1860s, it has developed dramatically in the past two decades, driven by processes of disintermediation, globalisation, and increased proportions of debt on corporate balance sheets. This growth has continued in this century with the advent of structured finance products, which accounted for nearly half of the major rating agencies’ income in 2007. Alongside these new service lines, sit a plethora of different ratings
intended for different purposes. This paper describes the role of the rating agencies and their ratings, along with the structure of the industry and their developing service portfolio. The importance of ratings to corporate treasury is described, along with the implications for treasurers of seeking a rating. Regulatory aspects concerning the industry are addressed. Finally, the
salient characteristics of ratings quality are described.