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Assessing Credit Quality By The Weakest Link Feb 12
Standard & Poors, Feb 2012
Abstract
In the common vernacular, a weak link refers to the concept of a chain only being as strong as its weakest link. In the context of credit ratings, a weak link refers to the principal of constraining a rating by the factor likely to impair credit worthiness or contribute to default the most. The 'likelihood of default' is the centerpiece of creditworthiness, as described in 'Understanding Standard & Poor's Rating Definitions,' published June 3, 2009. Thus, if the creditworthiness of a security is subject to five constraining factors, the overall creditworthiness of the security is determined by the weakest link (i.e., the most severely constraining factor). For example, in the case of a municipal obligation, suppose a $1,000 bond is...
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.
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