Archive for the ‘Credit Rating’ Category.

Warren Buffett on Credit Rating Agencies, Moody’s, S&P, Bonds, and Corporate Shareholders

Moody’s Investors Service, often referred to as Moody’s, is the bond credit rating business of Moody’s Corporation, representing the company’s traditional line of business and its historical name. Moody’s Investors Service provides international financial research on bonds issued by commercial and government entities and, with Standard & Poor’s and Fitch Group, is considered one of the Big Three credit rating agencies.

The company ranks the creditworthiness of borrowers using a standardized ratings scale which measures expected investor loss in the event of default. Moody’s Investors Service rates debt securities in several market segments related to public and commercial securities in the bond market. These include government, municipal and corporate bonds; managed investments such as money market funds, fixed-income funds and hedge funds; financial institutions including banks and non-bank finance companies; and asset classes in structured finance.[1] In Moody’s Investors Service’s ratings system securities are assigned a rating from Aaa to C, with Aaa being the highest quality and C the lowest quality.

Moody’s was founded by John Moody in 1909 to produce manuals of statistics related to stocks and bonds and bond ratings. In 1975, the company was identified as a Nationally Recognized Statistical Rating Organization (NRSRO) by the U.S. Securities and Exchange Commission. Following several decades of ownership by Dun & Bradstreet, Moody’s Investors Service became a separate company in 2000; Moody’s Corporation was established as a holding company.

In the late 1960s and 1970s, commercial paper and bank deposits began to be rated. As well, the major agencies began charging the issuers of bonds as well as investors — Moody’s began doing this in 1970[5] — thanks in part to a growing free rider problem related to the increasing availability of inexpensive photocopy machines,[14] and the increased complexity of the financial markets.[10][15] Rating agencies also grew in size as the number of issuers grew exponentially,[16] both in the United States and abroad, making the credit rating business significantly more profitable. In 2005 Moody’s estimated that 90% of credit rating agency revenues came from issuer fees.[17]

The end of the Bretton Woods system in 1971 led to the liberalization of financial regulations, and the global expansion of capital markets in the 1970s and 1980s.[5] In 1975, the SEC changed its minimum capital requirements for broker-dealers, using bond ratings as a measurement. Moody’s and nine other agencies (later five, due to consolidation) were identified by the SEC as “nationally recognized statistical ratings organizations” (NRSROs) for broker-dealers to use in meeting these requirements.[3][18]

The 1980s and beyond saw the global capital market expand; Moody’s opened its first overseas offices in Japan in 1985, followed by offices in the United Kingdom in 1986, France in 1988, Germany in 1991, Hong Kong in 1994, India in 1998 and China in 2001.[5] The number of bonds rated by Moody’s and the Big Three agencies grew substantially as well. As of 1997, Moody’s was rating about trillion in securities from 20,000 U.S. and 1,200 non-U.S. issuers.[12] The 1990s and 2000s were also a time of increased scrutiny, as Moody’s was sued by unhappy issuers and investigation by the U.S. Department of Justice,[19] as well as criticism following the collapse of Enron, the U.S. subprime mortgage crisis and subsequent late-2000s financial crisis.[5][20]

Following several years of rumors and pressure from institutional shareholders,[21] in December 1999 Moody’s parent Dun & Bradstreet announced it would spin off Moody’s Investors Service into a separate publicly traded company. Although Moody’s had fewer than 1,500 employees in its division, it represented about 51% of Dun & Bradstreet profits in the year before the announcement.[22] The spin-off was completed on September 30, 2000,[23] and, in the half decade that followed, the value of Moody’s shares improved by more than 300%.[12]

In June 2013, Moody’s Investor Service has warned that Thailand’s country’s credit rating may be damaged due to an increasingly costly rice-pledging scheme which lost 200 billion baht (.5 billion) in 2011-2012.
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Index Annuity Crediting Methods

An index annuity earns interested based on an external financial index, such as the S&P 500. Interest that is credited to the annuity is based on a formula that is linked to the underlying index. An index annuity also is usually guaranteed to pay a minimum interest rate so that investors do not lose their initial investment premiums.

One of the most important features in determining the actual interest received on a contract is the crediting method used to measure the amount of change in the underlying index. The three most common methods are annual reset (ratcheting), high-water mark, and point-to-point:

Annual Reset
? Interest is determined by comparing the index value at the end of the contract year with the index value at the beginning of the contract year. Interest is added each year for the term of the contract.

High-Water Mark
? With this method, the index value is recorded at various points in time during the term of the contract. Typically, the annual anniversary is used as the reference points. Interest is added at the end of the contract and is based on the difference between the highest index value and the beginning index value.

? The final method pays interest at the end of the contract, similar to the high-water mark method. However, the amount is based on the difference between the index value at the end of the term and the index value at the beginning of the contract.

These three methods may yield similar results over one time span or drastically different results during another. It is important that investors research the options that are available on the annuity index annuity policy they are interested in because there are unique advantages and disadvantages for each method.

The annual reset method has the advantage that the interest is reevaluated each year and that future decreases in the index cannot affect the interest that was earned in previous years. The disadvantage for annual reset is that the participation rate may change each year. In general, its level will be lower than other indexing methods. Sometimes this method is also combined with a cap on the amount of interest that can be earned in a given contract year.

The advantage of the high-water mark method is that a customer may receive a higher amount of interest than other methods if the index reaches a high point towards the beginning or middle of the contract, then falls at the end of the contract term. However, the disadvantages are that this method sometimes comes with a cap and a lower participation rate than other methods. In addition, some contracts state that if the annuitant surrenders the contract before the end of the term, then the interest is forfeited.

The final method, point-to-point, has the advantage that many of the contracts have a higher participation rate than other index annuity methods since interest cannot be calculated before the end of the policy. However, like with the high-water mark method, some contracts will not pay interest if the annuity is surrenders before the term has ended.

The three index annuity crediting methods discussed above seem similar, however, the index-linked interest that is paid on an annuity will heavily depend on which method is used for the particular policy. Therefore, it is important that investors weigh the pros and cons of each method and choose the one best suited to current market trends.

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Title says it all!

Rating Our Presidents

I see that there was a recent news release by The Times, a British publication, which reported a ratings list of U.S. Presidents by a panel of eight historians as follows:

10 Best Presidents 10 Worst Presidents
Lincoln Eisenhower Buchanan G. Bush, Jr.
Washington Truman Pierce Hoover
F. Roosevelt Reagan Van Buren Harding
Jefferson Polk Harrison Garfield
T. Roosevelt Wilson Nixon Filmore

Rating Presidents is strictly an academic exercise. Historians generally differ based on the time they lived and the eventual course of history, which is usually a reliable indicator. The public, however, uses a different standard based more on popularity and likeability. Thus, note the absence of Kennedy and Clinton from this list, although Kennedy did finish at number 11 on the best list, Jimmy Carter barely managed to escape the bottom 10.

I know that Clinton is still very popular, but the historians said that although Clinton left office with a high approval rating they considered him mediocre. They added that he passed progressive legislation (welfare reform) but saddled himself with the Lewinsky scandal and landed at number 23. One panelist, Ben Macintyre said, “Clinton promised so much, delivered so little and embarrassed everyone”. Isn’t that what they call a con man?

As an avid student of presidential history, I would remove F. Roosevelt from the top 10, based on his dismal performance during the Great Depression. He probably gets good grades for his charisma, communication skills, and leadership qualities, particularly during WWII. I also would tend to raise Polk even higher in the standings; he was a man with great executive and management skills who presided over our “manifest destiny” period as a nation. I also would drop Wilson out of the top 10, since most of his term was served by his wife, not him. Maybe we should give her the 10 spot.

Also, I feel sorry for Harrison and Garfield. Harrison died after 23 days in office, when he got sick because he didn’t wear a coat while giving his inaugural address in freezing weather; and poor Garfield got shot and died after 4 months in office. So why are they on the worst 10 list? Maybe we should consider them “No shows”.

Who can dispute Lincoln and Washington our greatest Presidents. Although the challenges are different today, do you really think they would have pushed that stimulus package?

Wine Rating Systems

A few wine rankings sites which can help you figure out which wine is worth spending money on. It serves as a little history information about the real history regarding the wine rating machines.

Among the top and a lot of trusted wine reviews system is Parkers 100 aim Scale. The scale, that was created by Robert Parker and his friend Victor Morgenroth, prices wines from 50 – 100, 100 being, “an exceptional wine of powerful and complex personality displaying all the attributes expected of a vintage wine of its variety. Wines with this caliber are worth an unique work to locate, purchase, and take in,” and 50 being, “A wine deemed to be unacceptable.” All wine positions are based on your wine’s color, appearances, style, aroma, bouquet, flavor, finish, and general quality level or potential.

Another wine ratings scale is Wine Spectator’s 100 aim Scale. The scale was imitated from Parker’s Scale and used mainly for magazine visitors. It’s the same maxims as Parkers, but just a little less information in actual rating and it’s even more frank. A wine rated at 100-95 is known as a “Timeless: a fantastic wine,” and 74-50 is rated as a “Not recommended.” A score which was given a variety is usually the preliminary score and is often centered on barrel tasting.

At the time of March 2008, the wine ranks have switched to rolling four point spreads for unfinished wines. Wine Spectator believes it’ll “better reflect the subdued differences between wines, and provide our visitors better information because of their buying decisions.” Yet another wine rankings website is Wine Enthusiast mag.

They usually have an original s.e. that enables you to discover wines based on score, price, type, classic, combination or varietal, area, brand, unique qualifiers, book date, reviewer, and files per page. Their wine rating system can also be predicated on a 100 point scale with 100 becoming “Classic,” and 80-82 to be, “Acceptable.” They don’t integrate any lower numbers since nothing of the people seek anything under 80. You’ve got a selection to either wise search or field explore their website for the wine that you choose. As a final point, we our personal wine score specialist Michael Zimberg. He’s a real grading system for wines instead of a point system. He makes use of the school based approach to grading from A-F. He feels that no matter what the price of wine “region and rareness also play one factor. “He also grades based on something which is fun and various to use so it may merit an increased level. He’s got an outstanding sense of style and always knows the most perfect thing to drink.

Lindsay Aston is a contributing editor for Classic Wines, specializing in wine score.

Let’s Play Tropico 5: Waterborne [Gameplay] Part 9 – Credit Rating!

Tropico 5 Let’s Play / Gameplay – Waterborne Expansion!

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This Morning – 4 November 2013 – Martin Lewis on Credit Rating

today - 4 November 2013 - Martin Lewis on credit score

This day – 4 November 2013 – Martin Lewis on credit history
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S&P cuts credit history on Noble Group

S&P cuts credit history on Noble Group
SINGAPORE – Standard & Poor's reviews providers has actually cut its lasting business credit history on Singapore-listed Noble Group to 'BB-' from 'BB+', with an adverse outlook. "We downgraded Noble due to the company's volatile earnings and large trade …
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Moody's Cuts Rio Tinto's Credit History as Commodity Downturn Deepens
SYDNEY—Two weeks hence, Rio Tinto PLC leader Sam Walsh outlined programs the Anglo-Australian miner to cut capital returns and prices to “defend our position of power,” but which wasn't adequate to safeguard its credit history. Moody's Investors …
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Mead Johnson Nutrition CO (MJN) provided "A-" credit history by Morningstar
Mead Johnson Nutrition CO logo design Mead Johnson diet CO (NYSE:MJN) is provided an “A-” credit rating by analysts at Morningstar. The investigation company's “A-” score indicates your organization is a low standard danger. They also provided their particular stock a four …
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Oracle Co. (ORCL) Given AA Credit Rating

Oracle Co. (ORCL) Given AA Credit Rating
(NASDAQ:ORCL) has received an “AA” credit rating from Morningstar. The research firm's “AA” rating indicates that the company is a very-low default risk. They also gave their stock a four star rating. A number of other brokerages also recently …
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Brexit vote would affect UK's top credit score, says Standard & Poor's
A senior director at the ratings agency, which assigns credit scores to debt issued by governments around the world, said a Brexit vote “certainly could” affect Britain's rating, when interviewed by Bloomberg Television. Such a downgrade would push up …
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O'Reilly Automotive Inc (ORLY) Earns "BBB" Credit Rating
O'Reilly Automotive Inc (NASDAQ:ORLY) has earned a “BBB” credit rating from Morningstar. The research firm's “BBB” rating indicates that the company is a moderate default risk. They also gave their stock a two star rating. In other O'Reilly Automotive …
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