Municipal bond ratings and rating services have been severely criticized from time to time, yet they survive and prosper. Therefore, they must be useful. How are the services of value to issuers? to underwriters and dealers? to investors?
Bond Ratings are assigned by credit rating agencies to give indication of credit quality. These rating agencies assess the risk of bonds and based on this assessment they assign the bond a rank. This rank reflects the issuer's ability to meet the promised principal and interest payments. This rating may change during the life of the bond, depending on the deterioration/improvement in the ability of the issuer to meet the obligations of principal repayment and interest payments. A change in the rating can dramatically change the value of the bond.
Ratings are not absolute measures of quality. Each rating ...
The solution discusses how Municipal bond ratings and rating services are of value to issuers, to underwriters and dealers and to investors.