Why consider a credit rating
An external credit rating is a structured, third-party view of an issuer's creditworthiness. It is most often associated with public bond issuance, but the value of a rating extends well beyond that — private ratings increasingly serve as a tool to deepen banking relationships, optimise capital requirements under Basel IV, and open new sources of liquidity.
Four primary reasons to consider a rating
Marketing tool
A rating provides an independent view of an issuer's credit story for investors and counterparties, useful in an increasingly crowded and diverse capital markets environment.
Wider liquidity options
A rating opens access to a wider pool of institutional liquidity — public bonds, private placements, MTN programmes, term loan B, and commercial paper — beyond a relationship-bank funding base.
Improved pricing and terms
A wider, better-informed investor base typically drives more competitive pricing on debt issuance and can improve terms with relationship banks.
Third-party validation
Engaging with rating agencies generates valuable external input that often shapes business and financing structure decisions, independently of any specific issuance.
Basel IV — additional importance for ratings
Basel IV introduces standardised risk weights that banks must apply to corporate exposures depending on the borrower's external rating. Under this framework, unrated issuers face the same risk weight as a BB-rated credit. For investment-grade-like corporates, sharing a private rating with banking partners can materially reduce the regulatory capital banks need to hold against the exposure — making bank credit more available and better-priced.
| External rating | AAA to AA– | A+ to A– | BBB+ to BBB– | BB+ to BB– | Below BB– | Unrated |
|---|---|---|---|---|---|---|
| Risk weight | 20% | 50% | 75% | 100% | 150% | 100% |
Standardised approach risk weights for corporate exposures under Basel IV (CRR III in the EU, effective January 2025).
Private vs public — the rating spectrum
Private ratings
- Improve banking relationships — sharing a private rating allows lenders to verify their internal credit analysis, potentially unlocking additional credit appetite and reducing regulatory capital requirements under Basel IV.
- Ongoing rating relationship— maintaining an active rating cushions the impact of a future event such as M&A or refinancing, and ensures the agency has a strong understanding of the issuer before any public release.
Public ratings
- Diversified funding sources — access to public bonds, MTNs, private placements, term loan Bs, and commercial paper.
- Improved pricing — a wider investor base creates pricing tension; a rating acts as a benchmark for investors unfamiliar with the issuer.
- Additional liquidity and funding stability — international debt capital markets are deep and liquid, with tenors from one day to thirty-plus years across multiple currencies. They have rarely been fully closed to highly-rated corporates.
NotchWork produces shadow credit ratings — indicative analytical outputs based on publicly available rating agency methodologies. These are not official ratings and do not constitute investment advice. Important information