What is a credit rating?
Each agency applies its own methodology in measuring creditworthiness and uses a specific rating scale to publish its ratings opinions. Typically, ratings are expressed as letter grades that range, for example, from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk.
A Credit Rating evaluates the credit worthiness of a debtor. Credit worthiness means just that – whether the government entity is worthy of receiving credit. In this case the credit refers to long-term borrowing by way of debentures or other long-term loans.
A Credit Rating is a forward looking opinion about credit risk made by a professional organization specializing in evaluating credit risk. The Credit Rating expresses the rating agency’s opinion of the government entity’s ability to pay back the debt and the likelihood of default.
Credit Ratings are used by individuals and investors that purchase debentures and other forms of debt issued by government entities to determine the likelihood that the government entity will pay its debenture obligations.
Credit Ratings are typically expressed as letter grades that range from ‘AAA’ to ‘D’ to communicate the rating agency’s opinion of relative credit risk – ‘AAA’ is the highest rating and relates to the lowest level of credit risk. Generally, the higher the credit rating the lower the overall cost of borrowing. A Credit Rating of ‘A’ or higher is typically a requirement for institutional investors – typically banks, insurance companies, pension funds, investment advisors and mutual funds who act as highly specialized investors on behalf of others.
Standard & Poors provides the annual updating of Norfolk County’s Credit Rating.
Why does a credit rating matter?
The main purpose of a credit rating is to provide confidence and financial information to potential purchasers/investors in debentures (i.e, bonds and other debt instruments) issued by Norfolk County. The benefits of a strong credit rating lie with the fact that it reduces the interest rate costs on new debt issues, it allows for more flexibility in negotiating the length and terms on new debt and it generally broadens the market for Norfolk County’s municipal debentures. In addition, the annual credit rating and analysis provides a snap shot of the financial position and performance of the corporation, by an independent agency, for both public and Council to review.
Credit Rating Reports
You can find Norfolk County’s credit rating reports here: