Cass

To begin with, bond rating agencies like (Moody's Investors Services, Standard and Poor's or Fitch Ratings) evaluate publicly traded companies and communicate their opinions to potential and present investors. Credit ratings are summary statistics that reflect a rating agency's opinion, as of a specific date, of the creditworthiness and financial reliability of a particular entity. Rating agencies' assessment is mainly based on fundamental analysis and ratings, as summary statistics, have traditionally measured creditworthiness in the context of a capital, asset quality, management, earnings and liquidity analysis. Bonds are rated when they are first issued and usually when the circumstances of the issuing organization change significantly.

The rating process usually begins with the issuer requesting to be rated. Alternatively, the agency may contact the issuer after the new issue's registration. Next, the rating agency reviews public information and internal company files and assesses projected performance. When ready to assign a rating to the issue, S&P and Moody's differ in their procedures. S&P notifies the issuer of the proposed rating and allows the issuer to request a higher rating based on additional information. Moody's policy is to simultaneously announce a final rating to the issuer and to the public. After the assigned rating is announced, both agencies add the issue to their systems.

On the one hand, the question that arises: what is the Ð''valueÐ'' of these bond ratings and what impact they have on companiesÐ'' future performances, how important are they for company overall? Why do companies/corporations want their bonds to be rated? There could be several important answers and remarks regarding this issue.

First, ratings represent independent verification of their credit worthiness. They provide potential investors with an unbiased opinion regarding companies' abilities to meet obligations. It allows firms to incorporate inside information into the assigned ratings without disclosing specific details to the public at large. Publicly revealing inside information might benefit competitors or subject insiders to lawsuits should the projections not materialize, whereas rating agencies can incorporate privately disclosed information into the ratings that they assign without fully revealing it. Additionally, rating agencies claim to receive inside information such as the issuer's acquisition, expansion, new product, and debt issuance plans, which they maintain in strict confidence. Ratings would appear to provide a possible means of communicating relevant aspects of such inside information to bondholders or investors without at the same time disclosing harmful details to competitors, but whether the agencies actually receive much inside information is hard to ascertain. Generally speaking, companies allow the rating companies Ð''Ð''tell their storyÐ''Ð'' to investors.

Second and probably most important is that bond's rating is an indicator of its default risk (the risk when companies will be unable to pay the contractual interest or principal on their debt obligations). The ratings have a direct, measurable influence on the bond's interest rate and the firms cost of debt. In other words, the higher the rating Ð'- the lower the borrowing costs for the company and vice versa. From the investors point of view ratings influence the price and the yield of a bond. For the higher rated bonds investors are usually willing to pay more because of the lower credit risk default and for the lower rated bonds investors tend to pay less, but that doesn't mean that the expected return of the bond should be less than of the latter ones, it is all about the riskiness of the project and investors' position in dealing with that risk.

Furthermore, bond ratings might be a marketing tool that could be used to attract investors. There is no better way to influence investors' decisions by providing professional service by companies that are known at the highest level of quality. Usually investors who do not have time or who do not wish to analyse all the financial statements, calculate different ratios of the company, predict future earnings - simply trust the ratings, indicated by the rating agencies, which represent financial situation, future prospective, long or short term investment opportunities in a particular company's securities. The ratings are presented in a measurement of some letters that are usually constant and reflect rating agency's opinion on the degree of credit risk present in a rated bond unless the rating agency upgrades or downgrades the rating due to the company's performance changes. Most of the investors prefer rating agency's proposed judgements than the market opinion, because they think that professional point of view and investment projections are less risky. If a company is unrated, it does not necessarily mean that its bonds are of a higher risk, but it does mean that investors will have to turn to other means to evaluate its financial strength.

Another important issue regarding bond ratings is their further fluctuating measurements initiated by rating agencies i.e. upgrading or downgrading. There is no definite or completely proved opinion about the positive or negative impact that these changes might have for the issuer or investor because it depends on a number of factors playing in the market as well. These factors are closely correlated to the information that rating agencies provide, information that investors perceive themselves and most important the impact they cause on market efficiency overall. In the case of upgrades,