C: Exceptionally high levels of credit risk. The designation is intended to make clear that the rating solely addresses the counterparty risk of the issuing bank. It is not meant to indicate any limitation in the analysis of the counterparty risk, which in all other respects follows published Fitch criteria for analyzing the issuing financial institution.
Fitch does not rate these instruments where the principal is to any degree subject to market risk. Understanding Credit Ratings - Limitations and Usage Structured Finance Defaults Structured Finance Write-downs Notes: In the case of structured and project finance, while the ratings do not address the loss severity given default of the rated liability, loss severity assumptions on the underlying assets are nonetheless typically included as part of the analysis.
Loss severity assumptions are used to derive pool cash flows available to service the rated liability. For an explanation of how Fitch determines structured finance ratings, please see our criteria available at www.
In the case of public finance, the ratings do not address the loss given default of the rated liability, focusing instead on the vulnerability to default of the rated liability. Enhanced Equipment Trust Certificates EETCs are corporate-structured hybrid debt securities that airlines typically use to finance aircraft equipment.
Although rated as asset-backed securities, unlike other structured finance ratings, EETC ratings involve a measure of recovery given default akin to ratings of financial obligations in corporate finance, as described in paragraph A. F1: Highest short-term credit quality. F2: Good short-term credit quality. F3: Fair short-term credit quality. B: Speculative short-term credit quality. C: High short-term default risk. RD: Restricted default. A: B: C: No gradations applied to the F rating.
AAA: Exceptionally strong. AA: Very strong. A: Strong. BBB: Good. Fitch Ratings also publishes other ratings, scores and opinions.
For example, Fitch provides specialized ratings of servicers of residential and commercial mortgages, asset managers and funds. In each case, users should refer to the definitions of each individual scale for guidance on the dimensions of risk covered in each assessment. Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories signal either a higher level of credit risk or that a default has already occurred.
Fitch may also disclose issues relating to a rated issuer that are not and have not been rated. Credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. The European Securities and Markets Authority also maintains a central repository of historical default rates. However, market risk may be considered to the extent that it influences the ability of an issuer to pay or refinance a financial commitment.
Ratings nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment for example, in the case of index-linked bonds. Fitch will use credit rating scales to provide ratings to privately issued obligations or certain note issuance programs, or for private ratings using the same public scale and criteria.
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