Moody's Ratings is a global credit rating agency, which is a type of financial institution that provides international financial research and opinions on the creditworthiness of debt issuers, such as governments and corporations. Its ratings are a concept that measures the expected investor loss in the event of default.
The institution traces its origin to 1909, when John Moody founded the company to produce manuals and assign letter grades to railroad bonds, solving the problem of investors lacking centralized, reliable information to evaluate securities. This marked the beginning of the modern bond credit rating system.
The mechanism works by assigning a standardized rating scale to debt securities, ranging from Aaa (highest quality, minimal credit risk) to C (lowest quality, highest risk). These ratings are opinions on the credit quality of individual obligations or an issuer's general creditworthiness. For example, a sovereign rating of Baa3 with a stable outlook, which India currently holds, indicates a medium-grade rating subject to moderate credit risk. The ratings are reviewed regularly and influence the interest rate at which an issuer can borrow money.
Moody's Ratings connects to the broader concept of the "Big Three" credit rating agencies, alongside Standard & Poor's (S&P) and Fitch Group, which collectively hold a dominant market share. Its sovereign ratings, like the one for India, are closely watched by global investors and regulators.
The institution recently underwent a change: the credit ratings division, formerly known as Moody's Investors Service, was rebranded as Moody's Ratings on March 6, 2024. What stayed the same is its core function as a subsidiary of Moody's Corporation, providing credit ratings and research on debt issuers.