Municipal Bond Credit Ratings

Bond Credit Ratings are given to a bond in order to showcase its credit quality. Bond ratings are published for all investors to see. By rating the bonds, investors are better able to determine the overall quality of the municipal bond and whether or not it is the right investment for them. However, not all new issues are rated. If a particular issue is not in the high-dollar bracket, or even if it is not of sufficient quality as determined at its onset, the issuers will not bother to have it rated.

Who Does the Rating?

Three major firms have been dominated the bond rating industry for decades. The first to be established was Moody’s Investor’s Service, Inc. in 1909. Next came Fitch in 1913, and then Standard & Poor’s in 1940. Each of these three firms is based in New York City, NY. Each firm rates both long and short term issues, notes, commercial paper, and various other types of bonds.

Determining a Bond’s Rating

When an issuer is preparing to issue a bond, they must first contact a rating agency. The rating agency will require the issuer to hand over all financial documents concerning the issue. Such documents may include internal audits and financial projection statements. The issuer will typically have a team of financial advisors prepare this information and present it to the rating agency. Validity of the documents, credit of the issuer, and overall presentation are the main factors that will help the rating agency to determine how to rate a particular issue.