split rating

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Split rating

Two different ratings given to the same security by two important rating agencies.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Split Rating

A situation in which two ratings agencies give a bond two different ratings. Experts disagree as to why ratings agencies may give different ratings, but many point to differences in methodology. They also disagree as to whether the higher or the lower rating affects market prices more. It is important to note, however, that most regulators do not allow banks and some other institutional investors to buy bonds that have not received an investment-grade rating from at least two agencies. Thus, a split rating in which one agency calls a bond investment-grade and another calls it junk can have major implications for issuers and some investors.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

split rating

A condition that occurs when the same bond is rated differently by the rating agencies. An example is a bond rated AA by one agency and A by another agency. A split rating may occur because one rating agency places a different emphasis on certain variables or because it views a particular item (such as a recent acquisition by the issuer) differently than the other rating agency.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Bonds issued by firms with poor firm-specific information quality are more likely to receive split ratings due to a greater likelihood that the agencies will reach different conclusions based on limited relevant information about the issuer.
At the time of issue, the probit coefficient estimate of Synchronicity on the incidence of split ratings (Model 1) is -0.078.
Split Ratings. These new criteria have increased issuers' split ratings (when the agencies assign different ratings to the same issuer).
The only country in Latin America with split ratings, Panama has a rating for government bonds that is non-investment grade Ba1, also with a stable outlook.
Ederington (1986) focuses on bonds with split ratings; i.e., bonds that receive different ratings from different rating agencies.
This point is further reinforced by the data in Table 3 which shows whether a stare received a single rating, two homogeneous ratings (same rating category (e.g., Aa/AA)), or split ratings (different rating categories (e.g., Aa/A)).
In other words, it appears that split ratings increase the yield of bonds.
One result is that split ratings are now fairly common.
Consequently, split ratings impose higher borrowing costs for firms, especially during economic downturns.
We examine the relation between asset opaqueness and split ratings. We find that firms with asset opaqueness problems are more likely to receive split bond ratings from Moody's and S&P rating agencies.
However, in about 15% of cases, these two raters disagree on the letter rating--a so-called split rating. [5] The empirical evidence in Jewell and Livingston (1998) suggests that cases of split ratings are distinct risk categories.