The three credit-rating agencies operate worldwide, measuring the credit-worthiness of government and corporate bonds. Their methods for rating bonds are slightly different. Moody's ratings consider the expected losses in case a company or government defaults. Standard & Poor's and Fitch look at how likely it is that a default will occur.
The three major credit-rating agencies, along with six others, are recognized by the U.S. Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations. That means the SEC allows their ratings to be used by other companies for a set of regulatory purposes. Moody's, S&P and Fitch were the only recognized organizations until 2003.
Moody's Investors Service is a subsidiary of Moody's Corp. S&P is a subsidiary of McGraw-Hill Cos. Fitch is a subsidiary of Hearst Corp. and FIMALAC. Moody's, S&P and Fitch have more than 90 percent of the market share. Most of their revenue comes from bond issuers paying them to rate their securities, which led to criticism and questions about their independence after the 2008 world economic collapse. Like other players in the financial industry, the credit-rating agencies failed to recognize the toxicity of subprime home mortgages when they were packaged together and continued to award top ratings to firms that sold the packages as investments.
Illinois Issues, November 2012
