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Home Credit Ratings

The need for internationally recognized credit rating occurs with the globalization of financial flows and the growth of speculative trading. Investors do not care about the nationality of the bonds and the financial instruments. Concepts such as patriotism or personal sympathies have lost their meaning.

The rating agencies saddled themselves with the noble task to unify criteria for assessing credit risk; among the most authoritative of them are - Moody's, Standard & Poors, and Fitch, Inc. No matter whether comes to issuance of government securities of the United States, Bulgaria or Cameroon, the Tokyo or Bucharest municipal bonds, corporate debt or shares in different countries the principles and methods for evaluation are the same.
 
Classification
Credit ratings of Investment Type.

AAA – The highest credit rating; it indicates the lowest credit risk. This rating is assigned when extremely strong capacity for timely repayment of financial obligations is proved. The likelihood of deterioration as a result of external adverse factors is minimal.
Аа, АА – Very high credit quality; they indicate very low credit risk. This rating indicates very high potential for timely repayment of financial obligations. The organization to which such rating is assigned is not particularly susceptible to adverse external emerging trends.

А – High credit quality; the rating indicates low credit risk. This rating indicates high potential for timely repayment of financial obligations, although the organization is susceptible to cnanges in circumstances or in economic condictions.

Ваа, ВВВ – Good credit quality – The rating indicates low credit risk. The potential for repayment of obligations is considered as satisfactory; however, there is a risk of deterioration of the state of the organization as a result of worsening the situation in the external environment and changing economic conditions.

Credit ratings of Non-investment Type.

Ва, ВВ – Risky – The rating indicates the potential occurrence of credit risk in the event of changes in macro economic in the course of time. However, it is possible business or financial alternatives to occur which allow the organization to easily repay its obligations.
В – High risky – The rating indicates the presence of significant credit risk, but there is limited element of security for the organization. Currently the organization meets its obligations, but the potential for repayment of debt in the future is dependent on a sustainable and positive business development and economic macro environment.

Саа, ССС, Са, СС, С – High risk of bankruptcy – The bankrupt of the organization is absolutely possible. The potential for repayment of debt in the course of time depends only on the stability and favorable development of the macro environment.

Са, СС – The rating shows great possibility for future bankruptcy.
С – The rating signals for an inevitable bankruptcy.
 
DDD, DD, D (Moody's C) – Actual bankruptcy – This rating depends on the prospects for full or partial satisfaction of the creditors of the organization.

DDD – The highest potential for satisfaction of the creditors /about 90 – 100%/. Organizations with such credit ratings have the potential to resume their activities with or without a reorganization of their business.

DD – A potential for satisfaction of the creditors within 50 – 90%.

D – The lowest potential for repayment of debts to creditors – under 50%.
Ancillary indices to the main rating index

“+” or ”-” – In order to specify further the status of the organization  "+" or "-" sign can be added to the main index. Ancillary indices are not added to category ААА, Ааа and to categories below Саа, ССС.

“Withdrawn” – This ancillary index is assigned to securities for which the necessary information to determine the credit rating is missing as well as to securities, which have been withdrawn from trading.

“Rating Watch” – Placed under surveillance are those organizations for which there is sufficient likelihood for up or down change in the current rating. When the trend is to raise the credit rating index "Positive" index is placed and if the trend is for decrease in the credit rating "Negative" index is placed. When index "Evolving" is set, this means that it is possible to increase or decrease the credit rating or it remains unaltered. The surveillance lasts for a relatively short time.

“Rating Outlook” – shows the development prospects of the organization in a period of 1-2 years. The Rating Outlook can be “Positive”, “Negative” or “Stable”. Stable outlook means the probability of keeping the current rates for a period of 1-2 years, although it is possible to increase or decrease the rating.

Shares/Stocks of Companies

Shares are ordinary and privileged. Ordinary shares entitle to vote in the General Assembly of the company. On the contrary, holders of preferred shares may not vote at shareholder meetings, but on the other hand, are entitled to a higher dividend than that of ordinary shares. The shares are also divided into registered and bearer. Transfer /sale/ of registered shares shall be made by endorsement through which the new owner is indicated. The transfer of bearer shares is realized through their physical transfer from the seller to the buyer.

The shares are also available and dematerialized. The available ones are printed as typical security with the relevant attributes and protections. Dematerialized shares are registered in the form of nominal depository receipts. Their transfer is made by compulsory mediation of a specialized clearing institution /depository/ which in the event of sale cancels the currently existing depository receipt and issues a new receipt for the next owner.

Stocks classification according to their investment qualities.

Blue chips – shares of large companies with a long successful history having stable dividends over the years.

Growth stocks – shares of emerging companies, which normally do not pay dividends, investing profits in business development. The benefit in this type of shares is the increase of their market value.

Defensive stocks – shares of companies that are sustainable in times of crisis

Income stocks – shares of companies paying dividends above the average of the market.

Cyclical stocks – shares of companies, the value and profitability of which depend on the stage of the economic cycle, i.e. they are pro-cyclical.

Seasonal stocks – shares of companies whose performance is susceptible to seasonal fluctuations.

It should be noted that many financial analysts blame just the rating companies for the financial crisis and in particular for the high volatility of the Forex and stock and raw materials markets. See more in Courses
                       

 
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