An Examination of Rating Agencies' Actions Around the Investment-Grade Boundary
FRB of Kansas City Research Paper No. 03-01
35 Pages Posted: 25 Apr 2003
Date Written: February 2003
Data on credit ratings by the agencies with the legal status of Nationally-Recognized Statistical Rating Organizations (NRSROs) show some tendency for one-day downgrades that start from the lowest investment grade, BBB-, to travel more grades than those from neighboring grades. This would be consistent with the lower threshold of the NRSROs; grade BBB- being at a substantial default probability, but also could occur simply because downgrades to junk severely impair some firms' operations. A comparison of data from a non-NRSRO agency and an NRSRO shows that the latter's regrades from BBB- moved in the direction of the non-NRSRO's earlier ratings. This suggests the non-NRSRO defines its grade BBB- more narrowly than the NRSRO.
Keywords: Credit Rankings, Default, Egan-Jones Ratings, Prediction, Enron, California Utilities
JEL Classification: G2, G28, G14
Suggested Citation: Suggested Citation