Introduction

The credit rating process is a structured workflow that the major rating agencies follow on every transaction, from the issuer's initial mandate through final rating publication. Understanding the process is essential for DCM bankers because it determines the timeline, deliverable requirements, and engagement points where rating advisory work has the most impact. The process is largely standardized across the Big Three (Moody's, S&P, Fitch), with minor differences in specific procedural details, and is documented in each agency's published methodology and process guidance.

This article walks through the rating process in detail. It covers the typical inaugural rating timeline of 4-8 weeks, the structured information-gathering phase, the lead-analyst-and-rating-committee governance structure, the issuer review and publication process, and the practical implications for DCM bankers managing rating processes on transactions. The framing is from the IBD DCM banker's seat, with the rating agencies as principal counterparties and the issuer's CFO and treasury team as the principal client interface.

The Inaugural Rating Process

For an issuer seeking its first rating from an agency, the process typically takes 4-8 weeks from formal mandate to public rating publication.

Mandate and Engagement

The issuer formally engages the agency through an engagement letter, paying an initial fee and committing to provide the requested information. The agency assigns a lead analyst plus a backup analyst.

Information Request

The agency provides the issuer with a comprehensive information request covering financial statements, business operations, capital structure, governance, peer benchmarking, and forward-looking projections.

Information Gathering

The issuer compiles and submits the requested information, typically over a 1-2 week period. The DCM team often supports this phase by helping the issuer organize information and pre-empt likely follow-up questions.

Initial Desk Analysis

The lead analyst conducts initial desk analysis, identifying credit strengths, weaknesses, and areas requiring follow-up information from the issuer.

Issuer Meeting

The lead analyst conducts a multi-hour meeting (in-person or virtual) with the issuer's senior management, typically including the CFO, treasury team, and operating leaders. The meeting allows the analyst to ask follow-up questions and gather qualitative context that financial analysis alone cannot provide.

Final Analysis and Recommendation

The lead analyst completes the credit analysis and prepares a recommendation for the rating committee, including the proposed rating, supporting analytical rationale, and benchmarking against the agency's methodology.

Rating Committee

The rating committee (typically 3-7 senior analysts plus a chair) reviews the lead analyst's recommendation, discusses any contentious points, and votes on the final rating. The committee structure ensures multiple analysts review each rating decision.

Rating Communication to Issuer

The agency communicates the final rating in writing to the issuer, with the principal analytical rationale.

Issuer Review

The issuer has a limited window (typically 24-48 hours) to review the draft rating action commentary for factual accuracy and to flag any non-public information that should not be disclosed. The agency retains full editorial control over the rating itself.

Publication

The agency publishes the rating publicly through its website and distributes the rating action to major financial newswires.

How an inaugural rating process typically runs in practice

Consider a private corporate issuer planning its first public bond issuance. The DCM team recommends seeking ratings from Moody's and S&P (most large IG benchmarks take both); Fitch may be added as a third agency depending on the deal size. The issuer engages both agencies through formal mandates 8-10 weeks before the planned bond launch. Each agency assigns a lead analyst and provides an initial information request. Over the next 3-4 weeks, the issuer compiles the requested information with DCM team support, and conducts initial calls with each agency's lead analyst. In week 5-6, each agency conducts a multi-hour management meeting with the issuer's CFO and treasury team. In week 7, each agency's rating committee meets and votes on the final rating. In week 8, the agencies communicate the rating to the issuer and publish publicly. The issuer launches the bond in week 9-10 with the published ratings supporting the marketing effort.

Information-Gathering Phase

The information-gathering phase is the most intensive period of the rating process and where DCM rating advisory has the greatest impact.

Typical Information Request

The agency's information request typically covers:

1.Financial information: 5+ years of audited financial statements, recent quarterly results, detailed capital structure breakdown, debt maturity profile, off-balance-sheet exposures, and forward financial projections (typically 3-5 years)
2.Business information: Business segment breakdowns, geographic exposure, customer concentration, competitive positioning, and operating metrics
3.Capital structure: Detailed analysis of all debt instruments, security packages, covenant compliance, hedging programs, and contingent obligations
4.Governance: Board structure, ownership profile, related-party transactions, and compensation arrangements
5.Peer benchmarking: Comparison to peer issuers on key credit metrics, market positioning, and rating outcomes
6.Forward strategy: Capital allocation framework, M&A pipeline, capex plans, dividend policy, and refinancing strategy

How DCM Bankers Add Value

DCM bankers add value during the information-gathering phase by:

1.Helping the issuer anticipate likely follow-up questions and pre-empt them in initial submissions
2.Framing the credit story in terms that align with the agency's methodology framework
3.Coordinating peer benchmarking presentations that position the issuer favorably
4.Preparing the issuer's senior management for the lead-analyst meeting
5.Providing market context (recent deal pricing, peer issuance, credit market conditions) that informs the agency's view

The Rating Committee

The rating committee is the central governance mechanism that ensures rating quality and methodology consistency.

Committee Composition

The rating committee typically includes 3-7 senior analysts plus a committee chair. Most committees include the lead analyst (who presents the recommendation), a backup analyst, the methodology specialist for the relevant sector, and senior credit officers. The chair ensures the committee follows the agency's procedural requirements and methodology framework.

Committee Discussion

The committee discussion focuses on:

1.The lead analyst's analytical recommendation and supporting rationale
2.Methodology compliance and benchmarking against peer issuers
3.Quantitative metrics versus qualitative judgments
4.Outlook designation (positive, stable, negative)
5.Any potential conflict-of-interest issues or commercial considerations

Committee Voting

The committee votes on the final rating, typically through a structured process where each member articulates their view. In most cases, the lead analyst's recommendation is accepted; in contentious cases, the committee may require further analysis or reach a compromise rating.

Rating Committee: A panel of senior credit analysts at a rating agency that reviews and votes on credit rating decisions. The committee structure is the central governance mechanism ensuring that no single analyst can unilaterally determine a rating, providing methodology consistency, quality control, and conflict-of-interest mitigation. Committees typically include 3-7 members plus a chair, with the lead analyst presenting the recommendation and the broader committee voting on the final rating. The committee structure is mandated by post-Dodd-Frank regulations and is one of the principal post-2008 reforms designed to address concerns about rating-agency analytical practices. Committee discussions are confidential, but the agencies publish summary rating action commentary that explains the principal analytical drivers of the committee's decision.

Issuer Review and Publication

The final phase of the process moves from committee decision to public rating publication.

Issuer Communication

After the rating committee concludes, the agency communicates the final rating to the issuer in writing, typically with a brief written rationale. The communication includes the rating itself, the outlook designation, and the principal credit drivers identified by the committee.

Issuer Review Window

The issuer typically has 24-48 hours to review the agency's draft rating action commentary before publication. The review is limited to:

1.Factual accuracy (correcting any factual errors in the agency's description)
2.Non-public information (flagging any information that should not be disclosed publicly)
3.Confidentiality (ensuring the agency does not inadvertently disclose confidential business information)

The agency retains full editorial control over the rating itself and the analytical rationale; the issuer cannot challenge the rating during the review window.

Publication Mechanics

Once the issuer review concludes, the agency publishes the rating action publicly through:

1.The agency's website (with full rating action commentary)
2.Distribution to major financial newswires (Bloomberg, Reuters, Dow Jones)
3.Distribution to subscribed institutional clients
4.Inclusion in the agency's daily rating action summary

The publication is typically simultaneous across all channels, with embargoes prohibited.

Issuers cannot meaningfully appeal an unfavorable rating

A common misconception is that issuers can appeal or negotiate ratings before publication. They cannot. The issuer review window is limited to factual accuracy and confidentiality, not to challenging the rating itself. Issuers who disagree with a rating typically have two options: accept the rating and work with the agency over time to address the analytical concerns, or "withdraw" the rating (terminating the agency engagement). Withdrawing a rating is a meaningful step that signals to investors that the issuer disagreed with the rating; the agency typically publishes a final action explaining the withdrawal. Most issuers accept unfavorable ratings rather than withdrawing, particularly for major issuers where the agency relationship has long-term value.

Ongoing Surveillance Process

After the inaugural rating, the agency conducts ongoing surveillance of the issuer's credit profile.

Rating Surveillance: The ongoing monitoring a rating agency performs on an issuer after assigning its initial rating, to keep the rating current as the issuer's credit profile evolves. Surveillance combines scheduled annual reviews (tied to fiscal-year financial reporting), event-driven reviews triggered by developments such as M&A or major debt issuance, and continuous monitoring of quarterly results and news flow. It is the mechanism through which upgrades, downgrades, outlook changes, and credit watch placements occur over a bond's life.

Most agencies conduct formal annual reviews aligned with the issuer's fiscal-year-end financial reporting, covering updated financial information, peer benchmarking, and forward outlook. Beyond annual reviews, agencies conduct event-driven reviews triggered by specific developments (M&A announcements, major debt issuance, regulatory actions, financial performance deterioration or improvement). Many agencies also maintain ongoing quarterly monitoring tracking quarterly financial results and news flow, which can lead to interim rating actions (outlook changes, credit watch placements) without a formal annual review.

The rating process is a structured workflow that DCM bankers manage on every rated transaction. The next article walks through rating methodology in detail, focusing on how the agencies score credit using their published methodology frameworks.

The Rating Process: From Mandate to Publication