The Big Three: Moody's, S&P, and Fitch

Introduction

The Big Three rating agencies (Moody's Ratings, S&P Global Ratings, and Fitch Ratings) sit at the structural center of global credit markets and are critical counterparties for every DCM banker covering rated debt. The three agencies together control more than 95% of the global credit ratings market by value of outstanding rated debt, with the duopoly of Moody's and S&P each holding roughly 40% market share and Fitch holding the remaining 15-20% as the third major player. Their ratings drive regulatory capital treatment, index eligibility, investor mandate compliance, and ultimately the spread at which any rated bond prices. Understanding how the Big Three operate, what differentiates them, and how DCM bankers manage rating-agency relationships is essential for anyone covering rated debt issuers across IG, HY, and SSA markets.

This article walks through the Big Three in detail. It covers each agency's history, business model, and competitive positioning, the NRSRO regulatory framework that gives their ratings official standing, the issuer-pays business model and its implications, the structural differences between the three agencies, and the practical implications for DCM bankers managing rating relationships. The framing is from the IBD DCM banker's seat, with the rating agencies as principal counterparties on every rated transaction and rating advisory as a core piece of pre-issuance DCM advisory work.

Each of the three major rating agencies emerged from a distinct historical context but has converged to a similar business model and competitive position over the past century.

Moody's

Moody's was founded by John Moody in 1909 as a publisher of statistical manuals on US railroads. The firm pioneered the modern letter-grade rating system in 1909 (the original "Aaa to C" scale that remains in use today), giving it the longest continuous track record in credit ratings. Moody's Investors Service is now a subsidiary of Moody's Corporation (NYSE: MCO), which generated $14.00-14.50 in expected 2025 adjusted EPS with the ratings business growing 4% in H1 2025 and the broader analytics segment growing 9%. Moody's holds approximately $2.3 billion in cash and short-term investments as of mid-2025 and maintains net leverage around 1.46x EBITDA, reflecting the strong cash-generation profile of the rating business.

S&P Global Ratings

S&P Global Ratings traces its roots to Henry Varnum Poor's 1860 publication "History of Railroads and Canals in the United States" and the merger of Standard Statistics with Poor's Publishing in 1941 to form Standard & Poor's. The ratings business is now part of S&P Global (NYSE: SPGI), which combines ratings with other major franchises (S&P Dow Jones Indices, S&P Global Market Intelligence, S&P Global Commodity Insights, S&P Global Mobility). S&P Global Ratings operates parallel to Moody's in market share and revenue terms, with the two firms jointly controlling roughly 80% of the global rating market.

Fitch

Fitch Publishing Company was founded in 1913 by John Knowles Fitch and pioneered the AAA-D rating scale that S&P later adopted. Fitch is now part of the Fitch Group, ultimately owned by Hearst Corporation. Fitch operates as the third-largest rating agency globally with approximately 15-20% market share, behind the Moody's-S&P duopoly but well ahead of any other ratings competitor. Fitch maintains comprehensive coverage across IG, HY, sovereigns, and structured credit, often serving as the third agency on large benchmark transactions where issuers seek ratings from all three majors.

NRSRO (Nationally Recognized Statistical Rating Organization)

A credit rating agency officially designated by the US Securities and Exchange Commission to issue credit ratings that have regulatory standing in US capital markets. The NRSRO designation was formalized through the Credit Rating Agency Reform Act of 2006 and replaced an earlier informal designation that the SEC had used since 1975. NRSRO status is essential for a rating agency's commercial viability because most US regulatory frameworks (insurance company capital charges, bank capital regulations, money market fund eligibility, retirement-plan investment guidelines) rely specifically on NRSRO ratings rather than non-NRSRO ratings. The Big Three (Moody's, S&P, Fitch) are NRSROs along with several smaller agencies (DBRS Morningstar, Kroll Bond Rating Agency, A.M. Best, Egan-Jones, HR Ratings de Mexico, Japan Credit Rating Agency, Japan Rating and Investment Information). The NRSRO designation creates a regulatory moat that has historically prevented serious new-entrant competition to the Big Three.

The Big Three collectively dominate global credit ratings, with the specific market shares varying somewhat across product segments and geographic regions.

Overall Market Share

The 95%+ combined market share of the Big Three reflects decades of established issuer relationships, deep regulatory entrenchment through the NRSRO framework, and the high-cost nature of building genuine rating capability across multiple sectors and geographies.

Segment-Specific Strengths

Each of the Big Three has specific segment strengths:

Geographic Considerations

The Big Three are all headquartered in New York and London but operate global rating networks. In some Asian markets (particularly Japan and China), local rating agencies (R&I, JCR in Japan; CCXI, China Chengxin in China) have meaningful market share alongside the Big Three. In Latin America, the Big Three plus DBRS Morningstar dominate.

All three major rating agencies operate on an "issuer-pays" business model, where the issuer of the bond being rated pays the rating agency for the rating service.

Issuer-Pays Model

The dominant business model for credit rating agencies, in which the company issuing a bond pays the agency a fee to rate it (typically a few basis points of the deal size). The model lets agencies make ratings broadly and freely available to the market, but it creates an inherent conflict of interest because the agency is paid by the entity it rates. The conflict was a central criticism after the 2008 crisis, yet the issuer-pays model has persisted because the main alternative, investor-pays, cannot fund comprehensive global ratings coverage at scale.

How It Works

When a corporate issuer plans a bond deal, it typically engages two or three rating agencies (most large IG deals get all three Big Three ratings; smaller deals or HY may take only two). The rating agencies conduct credit analysis, assign ratings, and publish them as part of the bond offering documentation. The issuer pays each agency a fee that scales with the issuance size, typically a few basis points of the deal size (e.g., approximately $200-500 thousand for a major IG benchmark, scaling up for larger deals).

Implications

The issuer-pays model has been criticized for creating potential conflicts of interest: the rating agency is paid by the entity it is rating, creating theoretical pressure to provide favorable ratings to retain business. The 2008 financial crisis exposed problems with this model in structured credit (where AAA-rated mortgage securities defaulted in large numbers), leading to regulatory reforms but no fundamental change to the business model.

The model persists because no viable alternative has emerged at scale. The "investor-pays" alternative (where investors pay for ratings rather than issuers) has not been able to fund the cost of running comprehensive rating capability across thousands of issuers globally.

The 2008 financial crisis exposed serious problems with rating-agency practices, particularly in structured credit. The reforms that followed reshaped the industry while leaving the basic Big Three structure intact.

Pre-2008 Structured Credit Failures

In the run-up to 2008, the Big Three assigned AAA ratings to vast amounts of mortgage-backed securities and CDOs that subsequently defaulted at rates far exceeding what AAA ratings should have implied. Subsequent investigation revealed multiple problems: methodology failures (credit models that did not stress-test housing-price declines), commercial pressures (rating shopping by issuers driving ratings competition), and inadequate oversight of structured credit ratings versus corporate or sovereign ratings.

Dodd-Frank and the Credit Rating Agency Reform Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) and the earlier Credit Rating Agency Reform Act (2006) imposed major regulatory reforms on NRSROs:

Implications for Today's DCM Workflow

The post-2008 regulatory reforms mean that DCM bankers cannot easily "shop" ratings by approaching multiple agencies and selecting the most favorable. The agencies' methodology disclosure makes the rating-process more rigorous and predictable, but also less amenable to relationship-driven outcomes. Effective rating advisory today emphasizes deep methodology understanding rather than relationship leverage.

Despite operating in essentially the same business model and serving the same issuer universe, the three agencies have meaningful differences in approach that affect DCM bankers' interactions with each.

Methodology and Analytical Style

Rating Outcome Differences

The agencies' ratings on a given issuer are typically within one notch of each other but can diverge meaningfully. "Split ratings" (where two agencies disagree by one or more notches) appear on roughly 30-40% of corporate issuers globally. The split pattern is asymmetric:

Communication Style

The agencies' communication styles differ:

Update Frequency

All three agencies provide ongoing surveillance of rated issuers, with rating actions (upgrades, downgrades, outlook changes, credit watch placements) occurring as warranted. Moody's and S&P typically have larger analytical teams covering individual issuers and more frequent rating action publishing.

The Big Three are critical counterparties on every rated transaction and require dedicated DCM banker engagement.

Rating Strategy on a Transaction

For a typical rated benchmark transaction, the DCM team's rating strategy work includes:

Rating Advisory as a Workstream

Rating advisory is one of the highest-value pieces of pre-issuance DCM advisory work. A successful rating advisory engagement can move an issuer's rating up by one or two notches versus what they would otherwise receive, with material spread implications. Pushing from B to BB on a marginal HY deal can produce 100-150 basis points of spread tightening, which on a $1 billion 7-year benchmark equates to $70-105 million in total interest savings over the bond's life (a present value of roughly $55-83 million once discounted).

Ongoing Rating Surveillance

Beyond individual transactions, DCM bankers help issuers manage ongoing rating surveillance, including periodic credit reviews, methodology updates, peer benchmarking, and capital-markets-related rating considerations.

The Big Three's combined 95%+ market share has been remarkably stable across multiple decades despite repeated reform efforts and new-entrant attempts.

Regulatory Moat

The NRSRO designation is genuinely difficult to obtain and creates a regulatory moat. Achieving NRSRO status requires demonstrating multi-year track records of ratings, comprehensive methodology, governance infrastructure, and audited compliance with SEC requirements. The cost and time required to build genuine NRSRO capability from scratch is prohibitive for most potential entrants.

Network Effects

Issuers want ratings that bond investors recognize and use. The network effect concentrates demand at the Big Three because every major institutional investor's mandate framework references the Big Three (and to a lesser extent the smaller NRSROs). New entrants face a chicken-and-egg problem: investors won't use ratings without established track record; track record cannot be built without investor demand.

Methodology and Coverage Breadth

The Big Three's methodology development across thousands of issuers, sectors, and geographies represents decades of cumulative analytical investment. New entrants cannot easily match this breadth, and partial-coverage entrants struggle to compete with comprehensive coverage.

Recurring Revenue Stability

The Big Three's revenue is highly recurring (Moody's analytics segment shows roughly 96% recurring revenue with mid-90s client retention), providing the stable cash flow profile that supports ongoing methodology investment. New entrants face a meaningful working capital and investment requirement that few are able to fund through to profitability.

Beyond the Big Three, several smaller NRSROs have specialized positions in specific market segments.

DBRS Morningstar

DBRS Morningstar (formerly Dominion Bond Rating Service, acquired by Morningstar in 2019) has strong positioning in structured credit and Canadian markets, where it competes more effectively than in US corporate ratings. DBRS Morningstar is the largest of the smaller NRSROs.

Kroll Bond Rating Agency (KBRA)

KBRA has built specialty positioning in CMBS, RMBS, and certain structured-credit segments where its analytical approach differs from the Big Three. KBRA-rated bonds typically also carry Big Three ratings on benchmark transactions but with KBRA providing the meaningful third or fourth opinion.

A.M. Best

A.M. Best specializes in insurance company ratings, where it has historical dominance and is often considered the primary rating reference for insurance balance sheets despite the Big Three also operating in the segment.

Egan-Jones

Egan-Jones operates an unusual investor-pays model and has been a critic of the issuer-pays system. Egan-Jones ratings have NRSRO status but limited market traction in mainstream issuance.

The rating business has been historically slow to adopt new analytical technologies, but the past several years have seen meaningful technology investments at all three major agencies.

Quantitative Modeling Enhancements

All three agencies have invested in enhanced quantitative credit models that supplement (rather than replace) the analyst-driven rating process. The models help identify outlier credits, benchmark issuers against peer groups, and flag deterioration patterns earlier than purely qualitative analysis would catch.

AI and Natural Language Processing

The agencies have begun deploying NLP and AI tools for analyzing earnings calls, regulatory filings, and news flows. Moody's analytics segment has been particularly aggressive in this area, with AI-driven products increasingly important to the broader analytics revenue base.

Disclosure Automation

Some of the more routine credit-disclosure analytics have been increasingly automated, freeing analyst time for higher-judgment credit assessments. The trend is unlikely to materially change the rating business's economics but may improve analytical productivity over time.

The Big Three rating agencies are central counterparties for every DCM banker covering rated debt and a recurring topic across DCM, leveraged finance, and credit-research interviews. The next article walks through rating scales in detail, including the distinction between issuer ratings and issue ratings.