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Standard & Poor's Ratings Definitions
Issue Credit Ratings Definitions
A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs.) It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days - including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on the following considerations:
- Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
- Nature of and provisions of the obligation;
- Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition.
| AAA |
An
obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely
strong.
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| AA
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An
obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's capacity
to meet its financial commitment on the obligation is
very strong.
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| A
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An
obligation rated A is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
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| BBB
|
An
obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
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Obligations
rated BB, B, CC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the
least degree of speculation and C the highest. While such
obligations will likely have some quality and protective
characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
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| BB
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An
obligation rated BB is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on
the obligation.
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| B
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An
obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the
capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the
obligation.
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| CCC
|
An
obligation rated CCC is currently vulnerable to
nonpayment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic
conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the
obligation.
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| CC
|
An
obligation rated CC is currently highly vulnerable to
nonpayment.
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| C
|
The C rating
may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken,
but payments on this obligation are being continued.
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| D
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An
obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not
made on the date due even if the applicable grace period
has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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Plus
(+)
or minus(-) |
The ratings
from AA to CCC may be modified by the addition of a plus
or minus sign to show relative standing within the major
rating categories.
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| p
|
The letter p
indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project
financed by the debt being rated and indicates that
payment of debt service requirements is largely or
entirely dependent upon the successful timely completion
of the project.
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| L
|
The letter L
indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying
deposit collateral is federally insured, and interest is
adequately collateralized. In the case of certificates of
deposit, the letter L indicates that the deposit,
combined with other deposits being held in the same right
and capacity, will be honored for prinicipal and
pre-default interest up to federal insurance limits
within 30 days after closing of the insured institution
or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
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| *
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Continuance
of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or
closing documentation confirming investments and cash
flows.
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| r
|
The r is
attached to highlight derivatives, hybrides and certain
other obligations that Standard & Poor's believes may
experience high volatitility or high variability i
expected returns as a result of noncredit risks. Examples
of such obligations are securities whose prinicpal or
interest return is indexed to equities, commodities or
other instruments. The absence of an 'r' symbol should
not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
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| NR
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Not rated.
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| Short-Term Issue Credit Ratings
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| SP-1
|
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
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| SP-2 |
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
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| SP-3 |
Speculative capacity to pay principal and interest.
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| Commercial Paper Ratings
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| A-1 |
This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
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| A-2 |
Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.
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| A-3 |
Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
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| B |
Issues rated B are regarded as having only speculative capacity for timely payment.
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| C |
This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
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| D
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Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the due date, even if the applicable grace period has not expired, unless Standard & Poor's believes such payments will be made during such grace period.
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©1999 by Standard & Poor's, A Division of The McGraw-Hill Companies, Inc. Reproduced with permission of Standard & Poor's. Standard & Poor's Ratings Services is a global leader in objective, insightful risk analyses and evaluations of the creditworthiness of issuers worldwide. For more information on Standard & Poor's ratings, products and services, visit http://www.standardandpoors.com/ratings. Information reproduced November, 1999. |
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