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<blockquote data-quote="Jake Rickman" data-source="post: 146388" data-attributes="member: 8521"><p>Hey Asil, </p><p></p><p>I saw the headline but have not yet read the article, though I think it is a great topic to raise. </p><p></p><p>Fitch, together with S&P and Moody, are known as the big three credit rating agencies. Their role in the financial markets is to review the creditworthiness of both large businesses (e.g., Walmart, BP, etc) and governments (sometimes called sovereign borrowers). They do this by assessing the likelihood that the entity will default on any of its outstanding credit/debt obligations. They then assign a rating to the "credit" (as the entity is called), which signifies to investors and the market the creditworthiness of the credit. </p><p></p><p>Based on memory, the three CRAs have different ranking systems, but usually it is some variation of AAA, AA+, AA, AA-, A, BBB, etc. with "triple A" or AAA indicative of the lowest risk of default, and C ratings the highest risk of default. </p><p></p><p>Sovereign borrowers include the US Federal Government (as well as the UK Government, and nearly every other government in the world). Government raise money to fund everything from the military to schools to roads etc, primarily through either taxes and issuing bonds. If you are considering investing in a government bond, you want to know what the risk of default it so you can gauge how good of an investment it is. </p><p></p><p>Traditionally, US bonds have been seen as the safest kind of investment because of the US's role (traditionally) as the world's largest economy and a stable political system. In other words, if the US Federal Government sold you a 10 year $100,000 bond at 4%, you would be safe in assuming that you will receive that $100,000 back in 10 years, plus the interest payments throughout the course of the bond's life. </p><p></p><p>However, since the 1990s, there has emerged a political tactic propagated by the Republican Party (one of two primary political parties in the US) that basically allows them to threaten to make the Federal Government default on its outstanding debt as a way to force the other political party to agree to their political demands. On I think at least three occasions, most recently a couple of months ago, the US got very close to defaulting. This caused a degree of panic in the market, because if the US government's debt is at risk of non-payment, it would throw in to question all other sorts of debt whose price is dependent upon the current value of US bonds. I explain this in more detail in an article TCLA published a few weeks ago. You can read more about it here: <a href="https://www.thecorporatelawacademy.com/forum/ams/us-debt-ceiling-negotiations-continue-to-stall-ahead-of-deadline.410/" target="_blank">US debt ceiling negotiations continue to stall ahead of deadline</a>.</p><p></p><p></p><p>Hope that is helpful! Let me know if you have any follow up questions. </p><p></p><p>(Also I have not forgotten about your PE question re: music catalogue acquisitions — I will circle back on that soon!)</p></blockquote><p></p>
[QUOTE="Jake Rickman, post: 146388, member: 8521"] Hey Asil, I saw the headline but have not yet read the article, though I think it is a great topic to raise. Fitch, together with S&P and Moody, are known as the big three credit rating agencies. Their role in the financial markets is to review the creditworthiness of both large businesses (e.g., Walmart, BP, etc) and governments (sometimes called sovereign borrowers). They do this by assessing the likelihood that the entity will default on any of its outstanding credit/debt obligations. They then assign a rating to the "credit" (as the entity is called), which signifies to investors and the market the creditworthiness of the credit. Based on memory, the three CRAs have different ranking systems, but usually it is some variation of AAA, AA+, AA, AA-, A, BBB, etc. with "triple A" or AAA indicative of the lowest risk of default, and C ratings the highest risk of default. Sovereign borrowers include the US Federal Government (as well as the UK Government, and nearly every other government in the world). Government raise money to fund everything from the military to schools to roads etc, primarily through either taxes and issuing bonds. If you are considering investing in a government bond, you want to know what the risk of default it so you can gauge how good of an investment it is. Traditionally, US bonds have been seen as the safest kind of investment because of the US's role (traditionally) as the world's largest economy and a stable political system. In other words, if the US Federal Government sold you a 10 year $100,000 bond at 4%, you would be safe in assuming that you will receive that $100,000 back in 10 years, plus the interest payments throughout the course of the bond's life. However, since the 1990s, there has emerged a political tactic propagated by the Republican Party (one of two primary political parties in the US) that basically allows them to threaten to make the Federal Government default on its outstanding debt as a way to force the other political party to agree to their political demands. On I think at least three occasions, most recently a couple of months ago, the US got very close to defaulting. This caused a degree of panic in the market, because if the US government's debt is at risk of non-payment, it would throw in to question all other sorts of debt whose price is dependent upon the current value of US bonds. I explain this in more detail in an article TCLA published a few weeks ago. You can read more about it here: [URL='https://www.thecorporatelawacademy.com/forum/ams/us-debt-ceiling-negotiations-continue-to-stall-ahead-of-deadline.410/']US debt ceiling negotiations continue to stall ahead of deadline[/URL]. Hope that is helpful! Let me know if you have any follow up questions. (Also I have not forgotten about your PE question re: music catalogue acquisitions — I will circle back on that soon!) [/QUOTE]
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