What is a credit rating and where can I find it on Totality ?

What is a Credit Rating?

A bond’s credit rating indicates its creditworthiness—in other words, how likely the issuer is to meet its debt obligations.
These ratings are issued by credit rating agencies, such as Standard & Poor’s (S&P), and are based on the issuer’s financial health, stability, and ability to repay debt.

Where Can I Find a Bond’s Credit Rating?

To view the credit rating of a bond on the platform:

1. Click on any bond
2. Ensure you're in the Product Overview tab
3. Scroll down to view the Credit Rating section

How to Interpret Bond Credit Ratings

Credit ratings are determined through an in-depth analysis of various factors, including:

• Financial strength of the issuer
• Industry outlook and broader economic conditions
• Legal and regulatory environment

For issuer ratings, S&P evaluates aspects such as:

• Financial performance
• Leverage and liquidity
• Cash flow generation
• Qualitative factors like management quality, corporate governance, and overall risk profile

Issuer ratings typically range from:

‘AAA’ (highest quality) to ‘D’ (in default)

For instrument or issue-specific ratings, S&P considers:

• The instrument’s seniority in payment
• Collateral backing
• Covenants attached to the bond
• Probability of default and expected recovery in case of default

These ratings also use the AAA to D scale.

Understanding the Ratings Scale

The chart below provides a general overview of what each rating level represents, helping investors assess the level of risk and expected return associated with a particular issuer or bond.

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Credit Ratings Definitions (S&P Global Ratings)

Rating AAA:
Definition: The highest possible rating. The issuer has an extremely strong capacity to meet its financial commitments.

Rating AA+ / AA / AA-:
Definition: Very high credit quality. These ratings differ only slightly from 'AAA'. The issuer has a very strong capacity to meet its obligations.

Rating A+ / A / A-:
Definition: High credit quality. More vulnerable to changes in economic conditions than higher-rated categories, but the issuer's ability to meet obligations is still strong.

Rating BBB:
Definition: Adequate credit quality. Protection parameters are sufficient, but the issuer is more likely to be affected by adverse economic conditions or changes in circumstances.

Rating BB+ / BB / BB-:
Definition: Speculative grade. Less vulnerable in the short term but faces significant ongoing uncertainties and exposure to adverse conditions that could affect repayment ability.

Rating B+ / B / B-:
Definition: More vulnerable to nonpayment than 'BB'-rated obligations. The issuer currently has the capacity to meet commitments, but adverse conditions could seriously weaken that ability.

Rating CCC:
Definition: Currently vulnerable to nonpayment. The issuer relies on favourable business, financial, and economic conditions to meet obligations.

Rating CC+ / CC / CC-:
Definition: Highly vulnerable to nonpayment.

Rating C+ / C / C-:
Definition: Indicates a situation where a bankruptcy petition has been filed or a similar action taken, but payments are still being made.

Rating D:
Definition: In default. The issuer has failed to make a payment when due. For hybrid instruments, a grace period longer than five business days is considered equivalent to a missed payment.

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S&P generally assesses credit ratings in both local and foreign currencies.

• Local currency ratings reflect the creditworthiness of an issuer or instrument within its domestic currency, and are assessed using the same rating scale as foreign currency ratings.
• Foreign currency ratings evaluate credit risk in a currency other than the issuer’s home currency, taking into account factors such as exchange rate risk and the availability of foreign exchange reserves.

S&P’s credit rating methodology is designed to provide a clear, consistent, and transparent assessment of credit risk, helping investors and market participants make informed decisions.
The rating scale offers a reliable measure of credit quality, giving insight into the relative credit risk of different issuers and financial instruments.

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