Similar to S&P and Moody’s, Fitch provides a letter rating to securities on a scale of 'AAA' to 'D' to determine the creditworthiness of obligors. Much like S&P, the Fitch system also implements plus and minus modifiers to each of their letter grades as a more specific way to explicitly rate securities bonds.
Fitch Ratings have a rich history in the world of U.S. securities. First formed in 1913 in New York City as Fitch Publishing Company, the firm has grown to serve as one of the three major nationally recognized statistical rating organizations (NRSRO) alongside Moody’s and S&P.
Investment Grade Ratings
Investment grade securities come with a bond rating of ‘AAA’ to ‘BBB’ on the Fitch rating scale. The higher degree of creditworthiness instills confidence in the issuers and reflects a higher likelihood of both short-term and long-term repayment.
A rating of ‘AAA’ represents the best in terms of creditworthiness, reliability and risk assessment. These debtors carry a very low risk when it comes to both short-term and long-term repayment. Economic forecasts and other factors remain optimistic about these debtors’ reliability and stability.
‘AA’ rated debtors also represent a high confidence level of creditworthiness for their stability and repayment potential. These are still quality debtors, but they often carry a slightly higher risk.
‘AA+’ ratings still bring a high level of short-term and long-term confidence in repayment. However, there is likely a higher degree of ambiguity in long-term economic forecasts than with ‘AAA’ rated obligors. ‘AA’ and ‘AA-‘ ratings have a slightly higher risk as well. These debtors' long-term repayment confidence may be impacted by economic forecasts and other factors.
Obligors with a rating on the ‘A’ scale may carry more volatility and risk within their long-term forecasts those which are more highly rated. These could relate to economic situations which may impact their ability to repay in the future.
An ‘A+’ rating carries the least amount of risk in this category while ‘A’ and ‘A-‘ ratings become slightly more moderate in their repayment quality and overall risk assessment.
Those on the ‘BBB’ level are often rated as medium class in terms of their creditworthiness. They bring satisfactory levels of short-term and long-term repayment potential. However, they may have an even greater susceptibility to economic conditions which could have a larger impact on their long-term repayment abilities.
Bond ratings with a score of BB or lower represent non-investment grade on the Fitch scale. These obligors may carry a higher risk both in short-term and long-term repayment. This often occurs due to ambiguous forecasts for economic or other factors as well as a history of other repayment circumstances.