Morningstar's Rating Terms
Morningstar utilizes a set of letter ratings ranging from AAA to D to express its opinion on the credit quality of a security based on
Morningstar’s policies and procedures. Morningstar also provides finer gradations of the ratings ranging from AA to CCC by adding a plus or minus
sign to indicate relative strength within the rating categories.
The definitions for Morningstar’s credit ratings are as follows:
A rating of AAA is the highest credit rating assigned by Morningstar. A rating of AAA indicates an extremely
strong ability to make timely interest payments and ultimate principal payments on or prior to a rated
final distribution or maturity date.
A rating of AA indicates a very strong ability to make timely interest and ultimate principal payments on or
prior to a rated final distribution or maturity date.
A rating of A indicates a strong ability to make timely interest and ultimate principal payments on or prior to a
rated final distribution or maturity date, but that ability could be influenced by adverse changes in circumstances
or conditions, such as adverse business or economic conditions.
A rating of BBB indicates the ability to make timely payments of interest and ultimate principal payments on or prior
to a rated final distribution or maturity date, but that ability could be impacted by adverse changes in circumstances
or conditions, such as adverse business or economic conditions.
A rating of BB indicates the ability to make timely payments of interest and ultimate payment of principal on or prior
to a rated final distribution or maturity date in the absence of various adverse circumstances or conditions such as
adverse business or economic conditions. The vulnerability of securities rated BB to the previously mentioned conditions
is greater than that of higher rated securities or issuers.
A rating of B indicates a default has not yet occurred but the issuer or securities are vulnerable to adverse changes
in the business or economic environment. Securities rated B are more vulnerable to nonpayment of timely interest and
ultimate payment of principal on or prior to a rated final distribution date than higher rated securities.
A rating of CCC indicates a material likelihood of default, and for corporate and financial institution obligations,
significant dependence on favorable business conditions to avoid default or capital restructuring.
For structured finance securities, forecasted or actual losses may have eroded but not yet eliminated available credit support.
A rating of CC on a corporate or financial institution issuer or security indicates a default has not yet occurred but the
issuer or security is extremely dependent on favorable business conditions to avoid default or significant capital restructuring.
This rating does not apply to structured finance securities.
A rating of C on a corporate or financial institution issuer or security indicates a default is expected in the very near term.
Corporate and financial institution issuers or securities will be rated C and placed on Under Review Negative during a cure
period for payments of interest and principal. This rating does not apply to structured finance securities.
A rating of SD indicates a selective default when an issuer has defaulted on one or more but not all of its debt obligations
without entering bankruptcy. Selective Default is not applicable to individual issues and therefore is not applicable to
structured finance securities.
A rating of D indicates that a default has occurred; or, for structured finance securities, (1) actual losses have reduced the
principal balance of the security; or (2) actual losses have eliminated available credit support. Additionally, forecasted
losses that would reduce the principal balance of the security or eliminate the available credit support,
subject to our reasonable judgment, may be indicative of a D rating.
NR(non-rated) - In situations where Morningstar rates certain classes of securities from an issuer or a transaction
but does not rate other classes, a NR designation is applied by Morningstar to those securities it does not rate.
Outlooks address the likely direction of changes in the rating and are not related to specific rating levels.
For example, an issuer can have a credit rating of AA and a negative outlook, and an issuer with a
rating of B can have a positive outlook. Furthermore, Outlooks are not assigned to credit ratings CCC and below.
Outlooks are assigned to corporate and financial institution ratings as part of Morningstar’s
forwardlooking rating methodology. The outlook considers trends in the economy and the issuer’s
industry as well as trends, if any, in the key credit components that drive the rating methodologies.
The outlook definitions are as follows:
Positive: Upgrade is possible within one to two years if current credit trends persist.
Negative: Downgrade is possible within one to two years if current credit trends persist.
Stable: No change is likely within one to two years if current credit trends persist.
Rating Under Review
Ratings are placed Under Review when it is likely that the rating will change but either the extent or the direction
of the change cannot be determined immediately.
Under Review Positive: The rating is likely to be raised. Rating symbol: UR+
Under Review Negative: The rating is likely to be lowered. Rating symbol: UR-
Under Review Developing: The rating may be raised or lowered. Rating symbol: UR
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Thursday, February 21, 2019