# Fitch Ratings Explained: Definition, Uses, and Rating Scale

## What Is Fitch Ratings?

Fitch Ratings is a company that evaluates the integrity of debt instruments like bonds based on the financial stability of the issuing company or government body. Fitch Ratings determines how likely it is that the issuer will default on its debt.

Fitch Ratings, Moody's, and Standard & Poor's are the three major agencies that rate bonds. Using similar grading systems, the companies rate bonds on a scale from top-quality "investment grade" (AAA to BBB) to low-quality "speculative" or junk bonds (BB to D), which reflects the creditworthiness of sovereign and corporate issuers.

Bonds are rated before issuance, which influences the returns they must offer investors. Higher risk requires higher returns. Changes in events during a bond's term might lead agencies to adjust its rating.

### Key Takeaways

*   Fitch Ratings evaluates debt instruments based on the financial stability of the issuing entity.
*   Fitch is one of the top three credit rating agencies globally, alongside Moody's and Standard & Poor's.
*   The agency uses a letter-based rating system, with AAA being the highest and D indicating default.
*   Sovereign credit ratings assess a nation's ability to meet its debt obligations, influencing international investment decisions.
*   Fitch ratings help investors gauge the risk of default and potential returns on investments.

## How Fitch Ratings Influence Investment Decisions

Investors rely on Fitch ratings to identify investments with lower default risks and solid returns. Fitch bases ratings on factors like the type of debt a company holds and its sensitivity to changes such as interest rates.

Like its competitors, Fitch identifies debt instruments as investment grade or non-investment grade. It further rates debt instruments according to a letter system.

The investment grade ratings are:

*   **AAA**: Issuers of exceptionally high quality with consistent cash flows
*   **AA**: still high quality; still has a low default risk.
*   **A**: low default risk; slightly more vulnerable to business or economic factors
*   **BBB**: a low expectation of default; business or economic factors could adversely affect the company

The non-investment grade ratings are:

*   **BB**: elevated vulnerability to default risk, more susceptible to adverse shifts in business or economic conditions; still financially flexible
*   **B**: degrading financial situation; highly speculative
*   **CCC**: a real possibility of default
*   **CC**: default is a strong probability
*   **C**: default or default-like process has begun
*   **RD**: issuer has defaulted on a payment
*   **D**: issuer has defaulted

## Sovereign Credit Ratings: Evaluating National Financial Health

Fitch provides [sovereign credit ratings](https://www.investopedia.com/terms/s/sovereign-credit-rating.asp), which describe a country's ability to meet debt obligations.

Sovereign credit ratings offer investors insights into the risks of investing in a particular country. Countries invite Fitch and other agencies to assess their economic, political, and financial environments for a rating.

A good credit rating is essential, particularly for developing nations, as it gets them access to international bond markets.

In 2018, Fitch awarded the U.S. its highest AAA long-term sovereign credit rating. On the lower end was Brazil with a BB-.

In 2023, Fitch downgraded the U.S. to AA+, a rating between AAA and AA that signifies a slight reduction in confidence that the country can pay its debts, but the agency believes the U.S. is still a high-quality investment with a low risk of defaulting.

> **Important**
>
> Country ratings shape international investor sentiments, making the U.S. downgrade to AA+ by Fitch significant.

## Corporate and Local Government Credit Assessments

Fitch Ratings also analyzes the issues of companies, local governments and agencies, and financial institutions for their creditworthiness.

For example, the agency analyzed two of Jacksonville, Florida's special revenue bonds, awarding them an AA- investment grade rating. This means the municipality is rated between a low risk of default and a low expectation of default on its two issuances, which total more than $290 million. The bonds are intended to refund earlier bond issues and finance capital equipment and improvements in the city.

At the financial institution level, Fitch rated National Westminster Bank mortgage-covered bonds at AAA, with a stable outlook. This rating is the highest available, signifying Fitch's confidence in the London-based bank's bonds.

## What Are Fitch Ratings?

Fitch Ratings are an indication of the creditworthiness of a company, a nation, or other entity. The rating is a conclusion about the ability of an entity to repay its debt.

## What Does the Fitch Rating A+ Mean?

A rating of A+ means there is a low default risk and that a business or country is slightly more vulnerable to business or economic factors. The plus symbol indicates that the entity's credit rating is higher than others given the A rating but not enough to warrant an upgrade to the AA rating.

## What Are Moody's and Fitch Ratings?

Moody's and Fitch Ratings are rating agencies that evaluate the creditworthiness of businesses and governments that seek to borrow money by issuing bonds or other debt instruments.

The ratings are used by investors to make decisions about their investments in debt.

More broadly, their ratings are seen as an indication of the financial health of the issuer.

Both agencies also provide sovereign credit ratings for countries to help international investors make investing decisions.

## The Bottom Line

Fitch Ratings is one of the top three credit rating agencies, alongside Moody's and Standard & Poor's, assessing the creditworthiness of governments, corporations, countries, and other issuers. Its ratings, ranging from investment grade (AAA to BBB) to non-investment grade (BB to D), play a crucial role in guiding investor decisions and gauging financial stability and risk. Understanding these ratings helps investors make informed decisions.  

> **Article Sources**
>
> 1.  Fitch Ratings. "[Rating Definitions](https://www.fitchratings.com/products/rating-definitions#ratings-scales)."
>     
> 2.  Fitch Ratings. "[Sovereigns](https://www.fitchratings.com/criteria/sovereigns)."
>     
> 3.  Fitch Ratings. "[Rating Action Commentary: Fitch Affirms U.S. at 'AAA'; Outlook Stable](https://www.fitchratings.com/research/sovereigns/fitch-affirms-us-at-aaa-outlook-stable-05-04-2018)."
>     
> 4.  Fitch Ratings. "[Rating Action Commentary: Fitch Downgrades Brazil's Ratings to 'BB-'; Revises Outlook to Stable](https://www.fitchratings.com/research/sovereigns/fitch-downgrades-brazil-ratings-to-bb-revises-outlook-to-stable-23-02-2018)."
>     
> 5.  Fitch Ratings. "[Fitch Downgrades the United States' Long-Term Ratings to 'AA+' from 'AAA'; Outlook Stable](https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023)"
>     
> 6.  Fitch Ratings. "[Fitch Rates Jacksonville, FL's Special Rev Bonds 'AA-'; Outlook Stable](https://www.fitchratings.com/research/us-public-finance/fitch-rates-jacksonville-fl-special-rev-bonds-aa-outlook-stable-11-08-2023)."
>     
> 7.  Fitch Ratings. "[Fitch Affirms NatWest's Covered Bonds at 'AAA'; Outlook Stable](https://www.fitchratings.com/research/structured-finance/covered-bonds/fitch-affirms-natwest-covered-bonds-at-aaa-outlook-stable-11-08-2023)."