Moody’s Explains Its Corporate Bond Rating System And Rating Process

Moody’s Investors Service has new rating policy paper in an attempt to provide greater transparency in its corporate bond rating process. ‘Understanding Moody’s Corporate Bond Ratings and Rating Process,’ sets out Moody’s core bond rating principles and explains the meaning, uses, and performance of Moody’s bond ratings. Christopher Mahoney, Chairman of Moody’s Credit Policy Committee, said that, while ratings are intended to be a simple and readily-understood signal about credit risk, the bond rating system has evolved in an institutional setting that has created complexity, not all of which is well understood by investors or issuers: ‘We are covering some ground that we have never covered before in a public document.’ The paper explains that Moody’s rating system — which includes signals, such as rating outlooks and rating reviews, in addition to the ratings themselves — has evolved ‘to provide timely information about potential changes in fundamental credit risk while preserving the relative rating stability sought by institutional investors’.


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