Lesson 6 of 6 · 12 min
Issuer versus issue ratings and notching
An issuer rating reflects the company's overall creditworthiness through its senior unsecured debt, while each issue rating is notched up or down from it to reflect that issue's seniority and expected loss given default.
In short
- Agencies give issuer ratings (corporate family rating, CFR; corporate credit rating, CCR; issuer credit rating) and issue ratings for individual obligations.
- The issuer rating usually applies to senior unsecured debt and addresses overall creditworthiness.
- Cross-default gives all issues of an issuer roughly the same POD; issue ratings differ because of LGD (seniority, subordination, sources of repayment).
- Notching: moving an issue rating up or down from the issuer rating. Notching is larger for lower-rated issuers.
- Structural subordination: holding company debt ranks behind operating subsidiary debt, because subsidiary cash serves subsidiary creditors first.
- Moody's ratings principally reflect expected loss; S&P and Fitch issuer ratings primarily reflect POD, with recovery ratings guiding notching.
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