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It is interesting how a simple display of letters can identify an entire sequence of events. With the announcement by Moody’s Corporation – Investors Service that the United Kingdom’s credit rating has lost its triple A credit rating, the above picture becomes significant and identifies a story of economic disarray.  It also puts into the spotlight the Moody’s Corporation which claims to be an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets. What makes this company such a powerful organisation? Here are the people responsible, Moody’s Standing Committee on Rating Symbols and Definitions:

Kenneth Emery - Chair & Senior Vice President, Credit Policy Group

Richard Cantor - Chief Credit Officer, Moody’s Investors Service

Henry Charpentier - Managing Director, Structured Finance Group

Jack Dorer - Managing Director, US Public Finance Group

David Fanger - Senior Vice President, Financial Institutions Group

Joseph Grohotolski - Vice President, Senior Compliance Officer

Matthew Jones - Senior Vice President, U.S. Public Finance Group

John Kriens - Vice President, Information Technology

Marie Menendez - Senior Vice President, Corporate Finance Group

Bart Oosterveld - Managing Director, Sovereign Risk Group

David Rosa - Senior Vice President, Credit Policy Group

Russell Solomon - Senior Vice President, Corporate Finance Group

Celina Vansetti-Hutchins - Managing Director, Financial Institutions Group

Alastair Wilson - Chief Credit Officer, Europe

The Company goes on to state:

The system of rating securities was originated by John Moody in 1909. The purpose of Moody's ratings is to provide investors with a simple system of gradation by which future relative creditworthiness of securities may be gauged.

Gradations of creditworthiness are indicated by rating symbols, with each symbol representing a group in which the credit characteristics are broadly the same. There are nine symbols as shown below, from that used to designate least credit risk to that denoting greatest credit risk:

Aaa Aa A Baa Ba B Caa Ca C

Aaa Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.

Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

A Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.

Baa Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.

Ba Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.

B Obligations rated B are considered speculative and are subject to high credit risk.

Caa Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.

Ca Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

C Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.

Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and

securities firms.

Global Short-Term Rating Scale

P-1 Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt

obligations.

P-2 Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt

obligations.

P-3 Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term

obligations.

NP Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating

categories.

The following table indicates the long-term ratings consistent with different short-term ratings when such long-term ratings exist:

The credit quality of most issuers and their obligations is not fixed and steady over a period of time, but tends to undergo change. For this reason changes in ratings occur so as to reflect variations in the intrinsic relative position of issuers and their obligations.

A change in rating may thus occur at any time in the case of an individual issue. Such rating change should serve notice that Moody's observes some alteration in creditworthiness, or that the previous rating did not fully reflect the quality of the bond as now seen. While because of their very nature, changes are to be expected more frequently among bonds of lower ratings than among bonds of higher ratings. Nevertheless, the user of bond ratings should keep close and constant check on all ratings — both high and low — to be able to note promptly any signs of change in status that may occur.

I gather that the fourteen people concerned have detected a change in the credit worthiness of the United Kingdom, but what is the full classification? Is it AA 1, 2 or 3? The picture does not tell the whole story.

Here is a video comment by a young man on the move.