Fitch Ratings: Red Flags For US Corporate Bond Investors.Business Editors NEW YORK--(BUSINESS WIRE)--Nov. 12, 2002 Market based indicators are useful tools to help analysts detect and respond to changes in corporate credit quality, however, a company's credit worthiness and its rating, is the sum of many parts, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a special report by Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. . 'While Fitch's core discipline of fundamental credit analysis has not changed, the company has adopted some new analytic tools', said Robert Grossman, Chief Credit Officer, Fitch Ratings. 'These new tools are particularly relevant in the current environment where institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. such as bond funds, CDOs and others have replaced banks as the primary source of debt capital.' Over the last year, Fitch, through its credit policy group, has employed the use of new traditional and non-traditional tools to help gauge Fitch-wide rating consistency and accuracy. Many of these new tools include market-based indicators, such as monitoring credit default swaps Credit Default Swap A swap designed to transfer the credit exposure of fixed income products between parties. Notes: The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. and bond price movements. Other new tools that Fitch has utilized range from simply repackaging traditional credit ratios and comparing and contrasting credit measures such as free cash flow or short term debt usage across companies, rating categories and industry groups, to increasing the analysis of independent macroeconomic mac·ro·ec·o·nom·ics n. (used with a sing. verb) The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. data. 'Investors need to know that any of these indicators alone simply serve as a 'red flag' and are only used to detect the possibility of deteriorating credit quality', said Grossman. 'Free cash flow generation remains the most important measure when assessing corporate creditworthiness Creditworthiness The condition in which the risk of default on a debt obligation by that entity is deemed low. Creditworthiness Eligibility of an individual or firm to borrow money. . We recognize that market prices do contain valuable information and enhance our process, particularly in analyzing a corporation's market access. But a rating system purely based on market prices would by definition be quite volatile and in boom times would be overly optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op for most issuers.' The report, 'Red Flags For U.S. Corporate Bonds Investors' is available on the Fitch Ratings web site at 'www.fitchratings.com' in the 'Credit Market Research' section under 'Research', or by contacting the Ratings Desk at 1-800-893-4824. |
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