Credit rating is an independent assessment of the creditworthiness of companies and governments, determining their solvency. It is based on the financial statements of these entities to assess if their business operations are sound. Rating agencies publish these ratings, generally categorizing them as either Investment Grade or Speculative Grade.

Importance of Credit Ratings

Regulatory Use: Regulators use credit ratings to determine the solvency of issuers, ensuring investor protection.
Risk Assessment: Credit ratings gauge the risk of default on debt instruments by companies and governments.
Investment Decisions: Investors use ratings as a key determinant in deciding whether to invest in securities.
Cost of Borrowing: Borrowers with high ratings usually incur lower interest costs compared to those with lower ratings.

Types of Credit Ratings

Investment Grade: Indicates a high likelihood of fulfilling obligations, assigned to companies with relatively low risk of default. Companies with strong financial health and stable performance are more likely to receive investment-grade ratings. The minimum investment grade is BBB- or its equivalent across different rating agencies.
Speculative Grade: Also known as non-investment grade, this indicates a higher likelihood of default. It is assigned to businesses with a relatively high risk of default. These instruments are often referred to as “junk” instruments. Although they can be profitable, they carry a greater risk of loss.

Credit Rating Agencies in Nigeria and Their Rating Scales

How Can Meristem Capital Limited Help?

Meristem Capital Limited, as an Issuing House and Financial Advisor, collaborates with rated issuers on debt capital raises and facilitates the registration and marketing of investment-grade instruments. In assisting issuers to raise debt capital, we consider the unique aspects of each issuer and their rating scores. When necessary, we advise on various credit enhancement strategies to ensure investor confidence and protection.