easily usable tools for differentiating credit quality,
because a Standard & Poor’s credit rating is judged
by the market to be reliable and credible.
Rating Process
Standard & Poor’s provides a rating only when there
is adequate information available to form a credible
opinion and only after applicable quantitative,
qualitative, and legal analyses are performed.
The analytical framework is divided into several
categories to ensure salient qualitative and quantitative
issues are considered. The rating process is not
limited to an examination of various financial
measures. Proper assessment of credit quality involves
an evaluation of the basic underlying economic
strength of the entity, as well as the effectiveness of
the governing process to manage performance and
address problems. Standard & Poor’s assembles a
team of analysts with appropriate expertise to
review information pertinent to the rating. A lead
analyst is responsible for the conduct of the rating
process. Several of the members of the analytical
team may meet and/or discuss with management
of the organization to review, in detail, key factors
that have an effect on the rating, including operating
and financial plans and management policies. The
meeting also helps analysts develop the qualitative
assessment of management itself, an important
factor in the rating decision.
Following this review and discussion, a rating
committee meeting is convened. At the meeting,
the committee discusses the lead analyst’s recom-
mendation and the pertinent facts supporting
the rating. Finally, the committee votes on
the recommendation.
The issuer is subsequently notified of the rating
and the major considerations supporting it. A rating
can be appealed prior to its publication, if meaningful
new or additional information is to be presented
by the issuer. Obviously, there is no guarantee
that any new information will alter the rating
committee’s decision.
Once a final rating is assigned, it is disseminated
to the public via Standard & Poor’s free web site
(www.standardandpoors.com), through the news
media and through Standard & Poor’s publications.
All initial ratings are assigned and released only
by request.
Rating Types
A Standard & Poor’s issuer credit rating is a current
opinion of an obligor’s overall financial capacity (its
creditworthiness) to pay its financial obligations.
This opinion focuses on the obligor’s capacity and
willingness to meet its financial commitments as
they come due. It does not apply to any specific
financial obligation, as it does not take into account
the nature of and provisions of the obligation, its
standing in bankruptcy or liquidation, statutory
preferences, or the legality and enforceability of the
obligation. In addition, it does not take into account
the creditworthiness of the guarantors, insurers, or
other forms of credit enhancement on the obligation.
The issuer credit rating is not a recommendation to
purchase, sell or hold a financial obligation issued
by an obligor, as it does not comment on market
price or suitability for a particular investor.
Issuer credit ratings are based on current infor-
mation furnished by 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 issuer credit rating
and may, on occasion, rely on unaudited financial
information. Issuer credit ratings may be changed,
suspended, or withdrawn as a result of changes in,
or unavailability of, such information, or based on
other circumstances. Issuer credit ratings can be
either long-term or short-term. Short-term issuer
credit ratings reflect the obligor’s creditworthiness
over a short-term time horizon, usually one to
three years.
Most Public Finance ratings are issue ratings. 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. It takes into consideration the creditwor-
thiness of guarantors, insurers, or other forms of
credit enhancement on the obligation. 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 ratingsIntroduction To Public Finance Criteriahttp://www.standardandpoors.com 7