Rating agencies provide, for a fee, opinions on the credit quality of an entity that issues bonds, or a specific bond issue. In other words, how likely the issuer is to pay principal and interest on time is considered. When determining a rating, the rating agency reviews, among other things, the issuer’s financial reports, tax structure and related laws, demographic data, and economic statistics.
The three major rating agencies are:
- Moody’s Investors Service
- Standard and Poor’s (S&P)
- Fitch Ratings.