Credit ratings are best thought of as a measure of risk: if I lend money to, or invest money in, this person, or this corporation, or this security, how likely am I to get my money back? This is essentially the same as the trivial assessments we make every day: the staid, millennium-old commercial bank in the center of town inspires no concerns in anyone, whereas the scruffy floater hanging out in startown might as well be a walking junk bond. Credit ratings merely formalize this.

Most relevant to Imperial investors, credit ratings are assigned to any entity of market relevance and any security listed on an Imperial exchange by one of a number of market rating agencies, such as Cheraelar & Orthodox (a joint venture between Gilea & Company and the Calmiríë Securities Exchange), Adichi Reliability, or Rational Risk Ratings. Such ratings are typically published covering short-term (12 year), medium-term (144 year) and long-term (576 year) periods.

The basic categories used for these ratings were set by Cheraelar & Orthodox, as one of the earliest rating agencies, and others have stuck to their format, although providing their own detailed write-ups and occasionally extending the format into other areas.

Super-Prime (AAA)

The six grades of super-prime are assigned to those entities or securities in which the ratings agency has confidence that there is no probability of obligor default whatsoever. Such a rating is extremely rare, requiring starcorporate status and/or a personal guarantee1 from Gilea & Company or another bank of equivalent stature2, along with domicile in a legal regime which permits appropriate guarantees to be made.

In the corporate realm, the Big 26 and five other Imperial corporations hold a AAA rating, along with fourteen foreign-domiciled corporations. Imperial gilts are the only sovereign security to be thus rated.

Prime (AA)

The twelve grades of prime are assigned to those entities or securities in which the ratings agency estimates the probability of obligor default as less than 0.083% during the rating period at the high end, and 0.166% at the low end. These are considered high-grade investments, suitable for long-term holds.

Sub-Prime / Sovereign-Impaired (A)

The twelve grades of sub-prime are assigned to those entities or securities in which the ratings agency estimates the probability of obligor default as greater than the 0.166% required to qualify as prime, but less than the 1% which would relegate them to the speculative class.

So-called “sovereign-impaired” entities or securities are those whose governing legal regime does not meet Alpha Concord Free Economic Zone Standard 23.1 where foreclosure is concerned, impairing legal recovery in the event of default. Such entities or securities cannot be classified higher than sub-prime, even if in other ways they would meet the standards for prime or even super-prime rating; naturally, the majority of sovereign debt and other sovereign-issued securities are considered sovereign-impaired.

Speculative (S)

The twelve grades of speculative are assigned to those entities or securities in which the ratings agency estimates the probability of obligor default as no more than 1% during the rating period at the high end, and less than 12% at the low end. While not a high rating in terms of risk, the majority of entities or securities rated S are new business startups, engaged in inherently risky ventures, or simply lack the financial history upon which a more favorable rating could be based; as such, they also tend to offer substantially higher returns than less risky investments.

S-rated entities and securities offer a great many opportunities to the attentive investor who can safely bear the risk of such investments, and to whom they are typically directed.

Junk (no letter code)

The twelve grades of junk are assigned to those entities or securities to which the ratings agency estimates a probability of obligor default exceeding 12% during the rating period. While not in default, and potentially on the road to recovery, the risk is significant and only experienced investors should consider them. In the bottom half of the category, sometimes referred to as “sub-junk”, such entities or securities are considered in collapse, “on the road to default”, and are best left to the vultures.

Defaulter (D)

The rated entity or security is in default, and no longer eligible for exchange trading. At this level, acquiring such securities is only useful as a basis for legal foreclosure, as a basis for hostile foreclosure, or as toilet paper.

– excerpted from “So, You Have Lazy Money?”,
Auric Productions Press

1. And at this level, that means the Old Lady personally signed off on it.

2. There are no recognized banks of equivalent stature, but it could happen.

5 thoughts on “Worthiness

  1. Is the “%” symbol here the rough translation of “per-gross”, or does the bottom end of A indicate a 1.44/144 probability of default?

  2. On a tangential note: How does the modal eldrae on the street view deliberately making a short-term “bad” investment with the goal of using the debtor’s probable / inevitable default as leverage to foreclose on something the debtor would not otherwise part with voluntarily (or at least cheaply)?

    • It’s a sneaky ploy – but so long as the deal is laid out clearly up-front such that there’s no whiff of fraud or lack of informed consent, there ain’t no rule that says someone can’t consent to something self-disadvantaging and bloody stupid.

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