The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They are Relevant

Credit ratings have become a universal phenomenon throughout the capital markets, relied upon by investors, issuers and regulators alike. Issuers understand the fundamental effect of their rating on financing costs, and investors make buying (and selling) decisions based heavily on these scores. Regulators have incorporated credit ratings into everything from allowable investment alternatives for institutional investors to required capital for global banking firms.

Credit rating agencies and their output are vital in overcoming the information asymmetries of the capital market. The Rating Agencies and their Credit Ratings is a comprehensive explanation of what they are, how they function and why they are relevant, addressing a broad range of issues from the credit rating process and the performance of credit ratings, to the evolution of the credit rating industry and its regulation.

The book is organised into three distinct sections. Part A provides an introduction to credit ratings and their broad and diverse applications, and describes how an issuer obtains and maintains a credit rating. Part B focuses on credit rating analysis, providing analysis of how rating actions and inactions interact with the market. Finally, Part C examines the credit rating industry, explaining where it comes from, what its main characteristics are, how the main players compete, and what results it produces for issuers, investors and shareholders.

Written by experienced Professors Herwig M. Langohr and Patricia T. Langohr, this book provides a unique and exhaustive introduction to credit ratings, developing the reader’s understanding of credit ratings and the credit rating agencies that produce them. It combines breadth of perspective, substantiation of arguments and depth in reflection, provided by the analysis of extensive field interviews, academic research, rating agency data and regulatory hearings and testimony.