Credit Scoring & Rating Systems Flashcards
7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Credit Scoring & Rating Systems flashcards as text
What is Standard & Poor's lowest investment-grade credit rating?
Answer: BBB-
BBB- is S&P's lowest investment-grade rating; any rating of BB+ or below is considered speculative grade (junk).
What does a 'CreditWatch' or 'review for possible downgrade' designation from a rating agency indicate?
Answer: The agency is actively monitoring the issuer for a potential near-term rating change
A CreditWatch designation signals that the agency is closely monitoring the issuer and a rating action may be forthcoming, typically within 90 days.
The NACM (National Association of Credit Management) Credit Risk Score is based primarily on:
Answer: Trade payment experiences reported by member companies
NACM's credit scoring draws on actual trade payment experience data contributed by its member companies, reflecting how businesses pay their trade creditors.
What is a 'split rating' in credit analysis?
Answer: When a company's domestic credit rating differs from its foreign currency rating
A split rating occurs when two prominent agencies (e.g., S&P and Moody's) assign different ratings to the same issuer or debt issue, requiring analysts to reconcile the disagreement.
Moody's rating that is roughly equivalent to Standard & Poor's 'BBB' is:
Answer: Baa2
Moody's Baa2 is the approximate equivalent of S&P's BBB, both representing mid-tier investment-grade credit quality.
What is the primary regulatory significance of the investment-grade versus speculative-grade boundary?
Answer: Many institutional investors and banking regulations restrict or prohibit holdings rated below investment grade
Pension funds, insurance companies, and banking regulations often restrict or prohibit holdings in bonds rated below investment grade, creating a significant demand cliff at the BBB-/BB+ boundary.
Which of the following best describes a 'through-the-cycle' credit rating approach?
Answer: Ratings are set to reflect expected creditworthiness across an entire economic cycle, not just current conditions
Through-the-cycle ratings aim to reflect long-run creditworthiness across varying economic conditions, producing more stable ratings compared to point-in-time assessments.