split rating

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 ?
First, Split Rating is equal to one if the Moody's and S&P ratings differ by one notch or more and zero otherwise.
Split rating between the rating agencies indicates presence of opacity and the presence of higher level of information asymmetry.
She has a split rating but her turf figure still looks too high on what she's done, being only 3lb lower than her all-weather one.
In 1995 there is "joint" certification, where on average one rating agency appears to merely certify to the judgement of the other, and it is questionable as to whether or not the additional certification acts as an independent "second" opinion.(9) It does however point to the value of a split rating. Namely, that split ratings may send a strong signal to the market precisely because they are so rare.
To avoid a split rating, an issuer must go with the most conservative collateral assessment.
Percentages come into play when there are balances in more than one column and the customer is given a split rating, such as PPT-SLOW30 or SLOW30-60.
We see that the split rating dummy is similar in magnitude and has the opposite sign from the seniority variable.
Consequently, the existence of the split rating suggests information opacity to risk-averse investors, who require a yield premium for split rated bonds.
Most publicly issued corporate and municipal bonds are rated by two rating agencies: Moody's and S&E However, the two rating agencies do not always agree on the ratings for a particular issue, resulting in a split rating. Since 1982, Moody's and S&P have provided sub-ratings or notch ratings, which subdivide the letter ratings (e.g., A+, A, A-).
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.
1 A split rating occurs when Moody's and Standard & Poor's assign different ratings to a bond.