What is S&P Global Ratings?

S&P Global Ratings (often abbreviated as S&P) is the world's largest international credit rating agency and a member of the "Big Three" alongside two other leading agencies. Its history dates back to the nineteenth century when the United States began publishing handbooks on the financial position of railroad companies. Today, the agency is part of the American S&P Global group, which is also known for its family of stock indices and analytics services for financial markets.

An S&P rating is the agency's opinion on the creditworthiness of a borrower: how likely it is to meet its debt obligations on time and in full. The agency evaluates sovereign states, regions, banks, insurance and industrial companies, as well as individual bond issues.

S&P Rating Scale

Long-term ratings are denoted by letters, with «+» and «−» signs clarifying the position within a category.

  • AAA — highest ability to meet obligations.
  • AA, A — very high and high reliability.
  • BBB — adequate reliability; BBB− rating is the lower bound of investment grade.
  • BB, B — speculative category: the borrower depends on favorable economic and business conditions.
  • CCC, CC, C — high vulnerability and proximity to default.
  • SD and D — selective default (on some obligations) and full default.

A separate scale is used for short-term obligations, ranging from A-1+ to D. National scales also exist for comparing borrowers within a single country.

Outlook and CreditWatch

Along with the long-term rating, S&P publishes an outlook: "positive," "stable," "negative," or "evolving." It reflects the possible direction of rating change in the medium term. If an event may affect the assessment in the near future, the rating is placed on CreditWatch — for review with possible upgrade or downgrade.

How Ratings Are Assigned

The agency's analysts review financial statements, debt load, business profile, competitive position, and quality of management. When assessing states, institutional resilience, economic growth, budget and debt situation, external positions, and monetary-credit flexibility are considered. The final decision is made by a ratings committee, with results published with an explanation of key factors. Typically, the issuer pays for the rating.

Why S&P Rating Matters to Investors

  • Risk assessment. The rating helps quickly understand how reliable an issuer or bond issue is.
  • Yield benchmark. Lower-rated securities typically offer higher yields as compensation for risk.
  • Regulator and fund requirements. Many institutional investors can only invest in investment-grade instruments.
  • Cost of borrowing. A rating upgrade reduces debt financing costs; a downgrade increases them.

Pros and Cons for Investors

Pros:

  • Clear and widely recognized scale that is easy to compare with other agencies' ratings.
  • Deep professional analysis unavailable to most individual investors.
  • Outlooks and CreditWatch provide early warning of possible changes.

Cons:

  • A rating remains an opinion and does not guarantee investment returns.
  • The agency may respond to deteriorating situations with a lag.
  • The "issuer pays" model carries a conflict of interest risk.
  • A ratings downgrade can cause sharp declines in bond prices.