Moody's Investors Service Changes RP Sovereign Credit Rating Outlook to Stable

As someone who worked previously for a domestic credit rating agency, I am glad that the major newspapers (the Philippine Daily Inquirer and the Philippine Star) picked up the story on the improvement in the credit rating outlook of the Philippines and used it even as their headline. This can only help the Philippine market become more aware of credit ratings and how such objective, third-party credit evaluations can affect the credit standing of a country or a company, even.

I liked the headline of the Philippine Star better. The article, written by Des Ferriols was titled: "Moody's Upgrades RP Debt Outlook to Stable." The Philippine Daily Inquirer story, written by Doris Dumlao, was titled: "R.P. Credit Gets Upgrade." If you read both articles, you will get the explanation for the change in outlook (i.e. improvement in government revenues, lower dependence on foreign debt) but the headline of the article in the Philippine Star is more accurate and complete. What happened was a change in outlook, not a change or upgrade in the credit rating.

A credit rating, in simple terms, is an evaluation of the capability to pay of a certain entity. A credit rating outlook, on the other hand, indicates the possible direction of the credit rating in the future. A positive credit rating outlook means that there is a possibility of a credit rating upgrade (i.e. the credit rating itself will actually improve). A negative credit rating outlook means that there is a possibility of a credit rating downgrade (i.e. the credit rating itself will deteriorate). A stable credit rating outlook also means that it is likely that the credit rating will stay right where it is at the moment. Some other credit rating agencies may also have an outlook called "developing," -- meaning that the credit rating agency is closely observing significant developments which may affect the credit standing of a particular entity very quickly.

Although there is reason to celebrate given the change in outlook as it means that there is very little danger in our credit rating deteriorating further, it is worth noting that our existing credit ratings still notches (or levels) away from investment grade, which is what would be considered as creditworthy paper. Investment grade is in the Baa or BBB level or better, depending on which international rating agency you follow.

Moody's Investors Service is the last of the four credit rating agencies to improve our rating outlook from negative to stable. The other international rating agencies that the Philippine government prominently watches are: Standard & Poor's, Fitch Ratings, and Japan Credit Rating Agency.

Anyway, am glad to see more stories about credit rating in the papers these days. These should contribute to a better understanding by Filipinos of what a credit rating means.

For more information about what a credit rating is all about, please visit www.angelicaviloria.com

[By Angelica Viloria | Friday, November 3, 2006]


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