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Fitch
Practical Law Glossary Item 4-500-2803 (Approx. 3 pages)
Glossary
Fitch
Fitch Ratings is a rating agency that ranks the credit-worthiness of borrowers by rating their debt or other securities using a standardized ratings scale. Their credit ratings cover corporate, sovereign, financial, insurance, municipal and other public finance entities and the securities or other obligations they issue. Fitch also covers structured finance securities backed by receivables or other financial assets. In addition to credit ratings, Fitch also publishes ratings, scores and other relative opinions relating to financial or operational strength. Fitch Ratings is part of the Fitch Group, which is majority-owned by Hearst Corporation.
Long-term Ratings Scale. Fitch's long-term credit rating scale runs from AAA to D and "+" or "-" modifiers may be appended to ratings between AA and B (for example, a BBB rating may be BBB+, BBB or BBB-). Fitch may also offer guidance on a rating in the form of a rating watch or a rating outlook. A rating watch indicates there is a heightened probability of a rating change and the likely direction of that change, whether "positive" (potential upgrade), "negative" (potential downgrade) or "evolving" (uncertain). A rating outlook indicates the direction a rating is likely to move over a one- to two-year period, whether "stable," "positive" or "negative."
- Investment Grade: AAA, AA, A, BBB (from highest quality to good quality but somewhat vulnerable to changing economic conditions).
- Non-Investment Grade (also referred to as speculative or "junk"): BB, B, CCC, CC and C (speculative; from the least degree of speculation to the highest degree); RD (restricted default); and D (in payment default).
Short-term Ratings Scale. Fitch's short-term credit rating scale runs from F1 to D.
- F1 indicates the strongest intrinsic capacity for timely payment of financial commitments. An F1 rating may have an added plus sign ("+") to denote an exceptionally strong credit feature.
- F2 indicates a good intrinsic capacity for timely payment of financial commitments.
- F3 indicates the intrinsic capacity for timely payment of financial commitments is adequate.
- B indicates minimal capacity for timely payment of financial commitments plus heightened vulnerability to near-term adverse changes in financial and economic conditions.
- C indicates that default is a real possibility.
- RD indicates the entity has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations.
- D indicates a broad-based default event for an entity, or the default of a short-term obligation.
See Practice Note, Credit Ratings and Credit Rating Agencies for a more detailed discussion on the operations and the role of credit rating agencies in financing transactions and offerings of debt securities.