How does S&P's corporate rating methodology differ from Moody's?

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AcadiFi · Accepted Answer

S&P uses a two-step framework that is more explicit than Moody's. Step 1 is the Business Risk Profile (BRP), which combines Country Risk + Industry Risk + Competitive Position. Step 2 is the Financial Risk Profile (FRP)...

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The BRP and FRP map onto a matrix that gives an 'Anchor' rating from aaa to b-. Example: Laurent Chemie, a French specialty chemicals maker, has Satisfactory BRP (3) and Intermediate FRP (3) — the anchor matrix gives bbb+/bbb. Then modifiers adjust: Diversification, Capital Structure, Financial Policy, Liquidity, Management/Governance, and Comparable Ratings Analysis. Each modifier can move the anchor up or down by 1-2 notches.

```mermaid
flowchart LR
  A[Business Risk] --> C[Anchor]
  B[Financial Risk] --> C
  C --> D[Modifiers]
  D --> E[Final Rating]
```

Key FRM distinction: S&P rates probability of default (PD), not expected loss. Instrument ratings are notched from the Issuer Credit Rating based on recovery prospects. S&P's Recovery Ratings (1+ through 6) run separately and can shift a senior secured bond up to two notches above the ICR.

How does S&P's corporate rating methodology differ from Moody's?

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