Downrating and downgrading (also used in German; sometimes also credit rating downgrade, downgrading and rating migration)

The public downgrading of a company or fund in its rating by a rating agency – international: currently still practically Standard & Poor’s, Moody’s or Fitch. – Each downgrade means that the credit conditions with the banks become less favorable for the company in question. In order to avoid a possible downgrading, many companies carry out a shadow rating, in which experts internally evaluate their own company at least as strictly as a rating agency would do. – Experience in recent years has shown that the premiums on credit default swaps (CDSs) often anticipate rating downgrades by the agencies. On the other hand, rating agencies have been sharply criticized for overrating securities issued in connection with securitizations, which became glaringly obvious during the turmoil in the mortgage market in the summer of 2007. But when the rating agencies downgraded the government bonds of various euro area members in 2011, some of which had been in gross violation of the Stability and Growth Pact for years, to junk status, they were rightly scolded by many politicians and also by the EU Commission. – See credit rating class, liquidity value at risk, plutoed, rating, rating agency, shadow rating, subprime crisis, underweight, jail prices. – Cf. ECB Monthly Report of August 2009, p. 18 et seq. (legal differences between the mortgage markets in the euro area and the U.S.), Deutsche Bundesbank Monthly Report of November 2011, p. 43 (premiums on Pigs government bonds since 2009).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/