What credit ratings have to do with the fallout at Silicon Valley Bank and First Republic — and why they matter so much to banks
"Ratings are not perfect," Eugene Grinberg, the CEO of SOLVE, a market data provider for fixed-income securities, told Insider."But they do still matter since they allow for an apples-to-apples comparison between two issuers."
"Rating agencies track issuers for many years and are able to identify changes in company performance that may not be evident from their financial statements alone," Grinberg added.Companies raise funds for expansion or new ventures via fundraising. To raise funds, they can either issue equity — i.e. a stake in the company — or issue debt. One way to issue debt is through bonds — an instrument which is repayable after a set period and one that accrues interest in pre-set installments.
Credit ratings agencies have their own methodology when determining creditworthiness — which explains why not all agencies may downgrade a company's debt at the same time. Similarly, a company will generally have to demonstrate that it has a lower risk of default to get an upgrade. Many metrics — such as management and corporate governance — are also qualitative,"so it is also about management looking good in the agency's eyes," he added.A downgrade to junk status by a credit ratings agency is serious business as it is not just reputational damage for companies that could impact investor confidence, but — just like how
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