Credit analysis

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Credit analysis

Evaluating information on companies and bond issues in order to estimate the ability of the issuer to live up to its future contractual obligations. Related: Default risk.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Credit Analysis

The process of determining the likelihood of default, especially by a bond issuer. Credit rating agencies conduct credit analysis in order to provide bond ratings; they may change these from time to time. Bond investors likewise conduct credit analysis. For example, if an investor's credit analysis indicates that a bond rating is about to decrease, he/she will be unlikely to invest in that bond, as it will lead to locking in a lower interest rate at a higher level of risk. On the other hand, if credit analysis shows that a bond rating is about to increase, an investor will be more inclined to buy that bond, as it provides a lower level of risk while also giving him/her a higher coupon. See also: Investment-grade, Junk.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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