Credit Rating
Short definition
A credit rating is an agency’s letter grade of willingness and ability to pay. It is a crude, slow, opaque PD proxy; it can diverge from CDS and the cash model.
Detailed explanation
The sovereign ceiling caps the firm grade. Outlook and watch can signal before the grade.
A bank’s internal rating differs from the agency grade and sets the line. A downgrade triggers covenants, collateral and spread.
Why it matters for the CFO
External issues and some covenants hang on the grade. A CDS divergence shows the grade lagging cash reality.
How to read it
Investment-grade is not universally “safe”; your cash horizon is separate. The grade does not replace collateral and CFADS.
Related calculators
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.