Moody’s Ratings is a concept and the name of a credit rating agency that is the credit ratings division of Moody's Corporation. It provides international financial research and opinions on the creditworthiness of debt obligations issued by commercial and government entities. The agency was founded by John Moody in 1909 to produce manuals of statistics related to stocks and bonds and to provide bond ratings, solving the problem of investors lacking reliable, centralized data on corporate securities. Moody's pioneered the concept of systematically rating bonds, which revolutionized investment decision-making.
The mechanism works through a standardized ratings scale that measures the expected investor loss in the event of default. Moody's assigns a rating from Aaa (highest quality and lowest credit risk) to C (lowest quality, usually in default) to debt securities, including government, municipal, and corporate bonds. The scale is divided into two sections: investment grade (Aaa to Baa3) and speculative grade (Ba1 to C). For further granularity, numerical modifiers 1, 2, and 3 are appended to most letter ratings, with 1 being the highest within that category. Ratings are determined by committees of analysts using published methodologies that consider quantitative and qualitative factors to assess the likelihood of a borrower fulfilling its debt obligations.
Moody's Ratings connects to the broader concept of credit rating agencies and is one of the "Big Three" globally, alongside Standard & Poor's (S&P) and Fitch Group. A significant recent change occurred on March 6, 2024, when the unit formerly known as Moody's Investors Service was rebranded and renamed to Moody's Ratings. The core function of providing credit opinions using the Aaa-to-C scale has stayed the same since its introduction.