Credit rating agency

1
Credit rating agency
Corporate finance
Working capital
Cash conversion cycle
Return on capital
Economic Value Added
Just-in-time
Economic order quantity
Discounts and allowances
Factoring
Sections
Managerial finance
Financial accounting
Management accounting
Mergers and acquisitions
Balance sheet analysis
Business plan
Corporate action
Societal components
Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and banking
Financial regulation
Clawback
v
t
e
[1]
A credit rating agency (CRA, also called a Ratings Service) is a company that assigns credit ratings rating of
the debtor's ability to pay back the debt by making timely interest payments and of the likelihood of default. An
agency may rate the creditworthiness of issuers of debt obligations, the debt instruments,
[2]
and/or in some cases, the
servicers of the underlying debt,
[3]
but not individual consumers.
Debt instruments the agencies rate may include government bonds, corporate bonds, CDs, municipal bonds,
preferred stock, and collateralized securities, such as mortgage-backed securities and collateralized debt obligations.
The issuers of the obligations/securities may be companies, special purpose entities, state and local governments,
non-profit organizations, or sovereign nations. A credit rating permitsor facilitatesthe trading of securities on a
secondary market. A credit rating affects the interest rate a security pays out, with higher ratings leading to lower
interest rates. Individual consumers are not rated for credit-worthiness by credit rating agencies, but by credit
Credit rating agency
2
bureaus (also consumer reporting agencies, credit reference agencies), which issue credit scores.
The value of credit ratings for securities has been widely questioned. Hundreds of billions of securities given the
agencies' highest ratings were downgraded to junk during the 200709 financial crisis.
[4][5]
Ratings downgrades
during the European sovereign debt crisis of 201012 have been blamed by EU officials for accelerating the crisis.
Credit rating is a highly concentrated industry with the two largest CRAs Moody's Investors Service, Standard &
Poor's having 80% market share globally, and the "Big Three" credit rating agencies Moody's, S&P and Fitch
Ratings controlling approximately 95% of the ratings business.
History
Early history
When the United States began to expand to the west and other parts of the country, so did the distance of businesses
to their customers. When businesses were close to those who purchased goods or services from them, it was easy for
the merchants to extend credit to them. This was do to the close proximity they shared as well as the merchants knew
their customers personally and knew whether or not they would be able to pay them back. Now with the added
distance, merchants no longer personally knew their customers and became leery of extending credit to people who
they did not know in fear of them not being able to pay them back. The uncertainty of business owners to extend
credit to new customers lead to the birth of the credit reporting industry.
[6]
Mercantile credit agenciesthe precursors of today's rating agencieswere established in the wake of the financial
crisis of 1837. These agencies rated the ability of merchants to pay their debts, and consolidated these ratings in
published guides. The first such agency was established in 1841 by Louis Tappan in New York. It was subsequently
acquired by Robert Dun, who published its first ratings guide in 1859. Another early agency, John Bradstreet,
formed in 1849 and published a ratings guide in 1857.
Credit rating agencies originated in the US in the early 1900s, when ratings began to be applied to securities,
specifically those related to the railroad bond market. In the US, the construction of extensive railroad systems had
led to the development of corporate bond issues to finance them, and therefore a bond market several times larger
than in other countries. The bond markets in the Netherlands and Britain had been established longer but tended to
be small, and revolved around sovereign governments trusted to honor their debts. Companies were founded to
provide investors with financial information on the growing railroad industry, including Henry Varnum Poor's
publishing company, which produced a publication compiling financial data about the railroad and canal industries.
Following the 1907 financial crisis demand rose for such independent market information, in particular for
independent analyses of bond creditworthiness. In 1909, financial analyst John Moody issued a publication focused
solely on railroad bonds. His ratings became the first to be published widely, in an accessible format and his
company was the first to charge subscription fees to investors.
In 1913, the ratings publication by Moody's underwent two significant changes: it expanded its focus to include
industrial firms and utilities, and began to use a letter-rating system. For the first time public securities were rated
using a system borrowed from the mercantile credit rating agencies, using letters to indicate their creditworthiness.
In the next few years, antecedents of the "Big Three" credit rating agencies were established. Poor's Publishing
Company began issuing ratings in 1916, Standard Statistics Company in 1922, and the Fitch Publishing Company in
1924.
Credit rating agency
3
Post-depression era
In the US, the rating industry grew and consolidated rapidly following the passage of the Glass-Steagall act of 1933
and the separation of the securities business from banking. As the market grew beyond that of traditional investment
banking institutions, new investors again called for increased transparency, leading to the passage of new, mandatory
disclosure laws for issuers, and the creation of the Securities and Exchange Commission (SEC). In 1936, regulation
was introduced to prohibit banks from investing in bonds determined by "recognized rating manuals" (the
forerunners of credit rating agencies) to be "speculative investment securities" ("junk bonds", in modern
terminology). US Banks were permitted only to hold "investment grade" bonds, and it was the ratings of Fitch,
Moody's, Poor's and Standard that legally determined which bonds were which. State insurance regulators approved
similar requirements in the following decades.
From 1930 to 1980, the bonds and ratings of them were primarily relegated to American municipalities and
American blue chip industrial firms.
[7]
International "sovereign bond" rating shrivelled during the Great Depression
to a handful of the most creditworthy countries, after a number of defaults of bonds issued by governments such as
Germany.
In the late 1960s and 1970s, ratings were extended to commercial paper and bank deposits. Also during that time,
major agencies changed their business model by beginning to charge bond issuers as well as investors. Reasons for
this change included a growing free rider problem related to the increasing availability of inexpensive photocopy
machines, and the increased complexity of the financial markets.
The ratings agencies added levels of gradation to their rating systems. In 1973, Fitch added plus and minus symbols
to its existing letter-rating system. The following year, Standard and Poor's did the same, and Moody's began using
numbers for the same purpose in 1982.
Growth of bond market
The end of the Bretton Woods system in 1971 led to the liberalization of financial regulations, and the global
expansion of capital markets in the 1970s and 1980s. In 1975, SEC rules began explicitly referencing credit ratings.
For example the commission changed its minimum capital requirements for broker-dealers, allowing smaller
reserves for higher rated bondsthe rating to be done by "nationally recognized statistical ratings organizations"
(NRSROs). This referred to the "Big Three", but in time ten agencies (later six, due to consolidation) were identified
by the SEC as NRSROs.
Rating agencies also grew in size and profitability as the number of issuers accessing the debt markets grew
exponentially, both in the United States and abroad. By 2009 the worldwide bond market (total debt outstanding)
reached an estimated $82.2 trillion in 2009 dollars.
[8]
1980s to present
Two economic trends of the 1980s and 90s that brought significant expansion for the global capital market were
the move away from "intermediated" financing (bank loans) toward cheaper and more long-term
"disintermediated" financing (tradable bonds and other fixed income securities), and
the global move away from state intervention and state-led industrial adjustment towards economic liberalism
based on (among other things) global capital markets and arms-length relations between government and industry,
More debt securities meant more business for the Big Three agencies which many investors depended on to judge
the securities of the capital market. The US government regulators also depended on the rating agencies, allowed
pension funds and money market funds to purchase only securities rated above certain levels.
A market for low-rated, high-yield "junk" bonds blossomed in the late 1970s, expanding securities financing to firms
other than a few large, established blue chip corporations. Rating agencies also began to apply their ratings beyond
bonds to counterparty risks, performance risk of mortgage servicers and price volatility of mutual funds and
Credit rating agency
4
mortgage-back securities. Ratings were increasingly used in most developed countries' financial markets and
increasingly in the "emerging markets" of the developing world. Moody's and S&P opened offices Europe, Japan,
and particularly in the emerging market. Non-American agencies also developed outside of the US. Along with the
largest US raters, one British, two Canadian, and three Japanese firms, were listed among the world's "most
influential" rating agencies in the early 1990s by the Financial Times publication Credit Ratings International.
Structured finance was another growth area. The "financial engineering" of the new "private-label" asset-backed
securities such as subprime mortgage-backed securities (MBS), and collateralized debt obligations (CDO),
"CDOs squared", and "synthetic CDOs" made them "harder to understand and to price" and became a profit
center for rating agencies. By 2006, Moodys' earned $881 million in revenue from structured finance. By December
2008, there were over $11 trillion structured finance debt securities outstanding in the US bond market.
The Big Three issued 97-8% of all credit ratings in US
[9]
and roughly 95% worldwidegiving them considerable
pricing power. This and credit market expansion brought profits margins of around 50 percent from 2004-2009.
As CRA influence and profitability expanded so did scrutiny and concern about their performance and alleged illegal
practices. In 1996 the US Department of Justice launched an investigation of possible improper pressuring of issuers
by Moody's in order to win business. Agencies were subject to dozens of lawsuits by unhappy investors complaining
of inaccurate ratings following the collapse of Enron, and especially after the US subprime mortgage crisis and
subsequent late-2000s financial crisis. During that debacle, 73%over $800 billion worthof all mortgage-backed
securities one credit rating agency (Moody's) had rated triple-A in 2006 were downgraded to junk status two years
later
Downgrades of European and US sovereign debt were also criticized. In August 2011, S&P's downgraded the
long-held triple-A rating of US securities. Since the spring of 2010,
one or more of the Big Three relegated Greece, Portugal, and Ireland to "junk" status--a move that many
EU officials say has accelerated a burgeoning European sovereign-debt crisis. In January 2012, amid
continued eurozone instability, S&P downgraded nine eurozone countries, stripping France and Austria
of their triple-A ratings.
Role in capital markets
Credit rating agencies assess the relative credit risk of specific debt securities or structured finance instruments,
borrowing entities (issuers of debt), and in some cases the creditworthiness of governments and their securities. By
serving as information intermediaries, credit rating agencies theoretically reduce information costs, increase the pool
of potential borrowers and promote liquid markets. These functions may increase the supply of available risk capital
in the market and promote economic growth.
Ratings use in bond market
Credit rating agencies provide assessments about the creditworthiness of bonds issued by corporations, governments,
and packagers of asset-backed securities. In market practice, a significant bond issuance generally has a rating from
one or two of the Big Three agencies.
CRAs theoretically provide investors with an independent evaluation and assessment of debt securities
creditworthiness. However, in recent decades the paying customers of CRAs have primarily been issuers of
securities, but buyers, raising the issue of conflict of interest (see below).
In addition, rating agencies have been liable for any losses incurred by the inaccuracy of their ratings at least in
US courts only if it was proven they knew the ratings were false or exhibited "reckless disregard for the truth".
Otherwise ratings were simply an expression of the agencies' informed opinions, protected as "free speech" under the
First Amendment. As one rating agency disclaimer read:
Credit rating agency
5
The ratings ... are and must be construed solely as, statements of opinion and not statements of fact or
recommendations to purchase, sell, or hold any securities.
Under an amendment to the 2010 Dodd-Frank act, this protection has been removed but determination of how the
law will be implemented remains to be determined by rules made by the SEC and decisions by courts.
To determine a bond's rating, a credit rating agency will analyze the accounts of the issuer and the legal agreements
attached to the bond to produce what is effectively a forecast of the bond's chance of default, expected loss, or a
similar metric. The metrics vary somewhat between the agencies. S&P ratings reflect default probability, while
Moody's ratings reflect expected investor losses in the case of default. For corporate obligations Fitch's ratings
incorporate a measure of investor loss in the event of default, but its ratings on structured, project, and public finance
obligations narrowly measure default risk. The process and criteria for rating a convertible bond is similar, although
different enough that bonds and convertible bonds issued by the same entity may still receive different ratings. Some
bank loans may receive ratings to assist in wider syndication and attract institutional investors.
The relative risks, i.e. the rating grades, are usually expressed through some variation of an alphabetical combination
of lower and upper case letters, with either plus or minus signs or numbers added to further fine tune the rating.
Fitch and S&P use AAA, AA, A, and BBB (from the most creditworthy to the least) for investment-grade long term
credit risk, and BB, CCC, CC, C, and D for "speculative" long term credit risk. Moody's long-term designators are:
Aaa, Aa, A, Baa for investment grade, and Ba, B, Caa, Ca, and C for speculative grade. Fitch and S&P use pluses
and minuses (e.g., AA+ and AA-) and Moody's uses numbers (Aa1 and Aa3) to add further gradations.
Estimated spreads and
default rates by rating grade
Rating
Basis
point
spread
[10][11]
Default
rate
[12]
AAA/Aaa 43 0.18%
AA/Aa2 73 0.28%
A 99 n/a
BBB/Baa2 166 2.11%
BB/Ba2 299 8.82%
B/B2 404 31.24%
CCC 724 n/a
Sources: Basis spread is
between US treasuries
and rated bonds
over a 16 year period;
Default rate over a
5-year period, from a study
by Moody's investment service
Agencies do not attach a hard number of probability of default to each grade, preferring descriptive definitions such
as: "the obligor's capacity to meet its financial commitment on the obligation is extremely strong," (from Standard
and Poors' definition of a AAA rated bond) or "less vulnerable to non-payment than other speculative issues ..." (a
BB rated bond). However, some studies have estimated the average risk and reward of bonds by rating. One study by
a rating service (Moody's)
[]
claimed that over a "5-year time horizon" bonds it gave its highest rating (Aaa) to had a
"cumulative default rate" of just 0.18%, the next highest (Aa2) 0.28%, the next (Baa2) 2.11%, 8.82% for the next
(Ba2), and 31.24% for the lowest it studied (B2). (See "Default rate" in "Estimated spreads and default rates by
Credit rating agency
6
rating grade" table to right.) Over a longer time horizon it stated "the order is by and large, but not exactly,
preserved".
Another study in Journal of Finance calculated the additional interest rate or "spread" that corporate bonds pay over
that of "riskless" US Treasury bonds, according to the bonds rating. (See "Basis point spread" in table to right.)
Looking at rated bonds from 197389, the authors found a AAA rated bond paid only 43 "basis points" (or 43/100th
of a percentage point) more than a Treasury bond (so that it would yield 3.43% if the Treasury yielded 3.00%). A
CCC-rated "junk" (or speculative) bond on the other hand, paid over 4% more than a Treasury on average (7.04% if
the Treasury yielded 3.00%) over that period.
The market also follows the benefits from ratings resulting from government regulations, (see below) which often
prohibit financial institutions from purchasing securities rated below a certain level. For example in the US, in
accordance with two 1989 regulations, pension funds are prohibited from investing in asset-backed securities rated
below A, and savings and loan associations from investing in securities rated below BBB.
CRAs provide "surveillance" (ongoing review of securities after initial rating) and may change a security's rating if
they feel its creditworthiness has changed. CRA's typically signal in advance their intention to consider rating
changes. Fitch, Moody's and S&P all use negative "outlook" notifications to indicate the potential for a downgrade
within the next two years (one year in the case of speculative-grade credits). Negative "watch" notifications are used
to indicate that a downgrade is likely within the next 90 days.
Accuracy and responsiveness
Critics maintain this rating, outlooking, watching, etc. of securities has not worked nearly as smoothly as agencies
suggest. They point to near defaults, defaults and financial disasters not detected by the rating agencies post-issuance
surveillance, or ratings of troubled debt securities not downgraded until just before (or even after) bankruptcy. These
include the 1970 Penn Central bankruptcy, the 1976 New York City fiscal crisis, the 1994 Orange County default,
Asian and Russian financial crises, the 1998 collapse of the Long-Term Capital Management hedge fund, the 2001
Enron and WorldCom bankruptcies, and especially the 2007-8 subprime mortgage crisis.
In the 2001 Enron accounting scandal, the company's ratings remained at investment grade until four days before
bankruptcy, though Enron's stock had been in sharp decline for several months when "the outlines of its fraudulent
practices" were first revealed.
[13]
Critics complained that "not a single analyst at either Moody's of S&P lost his job
as a result of missing the Enron fraud" and "management stayed the same". During the subprime crisis when 100s
of billion of dollars worth of triple A rated mortgage-backed securities were abruptly downgraded from triple A to
junk status within two years of issue the CRAs ratings were characterized by critics as "catastrophically
misleading"
[14]
and "provided little or no value.
[15]
Ratings of preferred stocks also faired poorly. Despite over a
year of rising mortgage deliquencies,
[16]
Moody's continued to rate Freddie Mac's preferred stock at triple-A until
mid-2008 when it was downgraded to one tick above the junk bond level.
[17]
Some empirical studies have also found
that rather than a downgrade lowering the market price and raising the interest rates of corporate bonds, the cause
and effect is reversed. Expanding yield spreads (i.e. declining value and quality) of corporate bonds precedes
downgrades by agencies, suggests it is the market that allerts the CRAs of trouble and not vice versa.
[18][19]
In response, defenders of credit rating agencies complain of the market's lack of appreciation. "When a company or
sovereign nation pays its debt on time, the market barely takes momentary notice ... but let a country or corporation
unexpectedly miss a payment or threaten default, and bondholders, lawyers and even regulators are quick to rush the
field to protest the credit analyst's lapse." (Robert Clow) Others state that bonds assigned a low credit rating by rating
agencies have been shown to default more frequently than bonds which receive a high credit rating, suggesting that
ratings still serve as a useful indicator of credit risk.
Credit rating agency
7
Explanations of flaws
A number of explanations of the rating agencies' inaccurate ratings and forecasts have been offered, especially in the
wake of the subprime crisis.
The methodologies employed by agencies to rate and monitor securities may be inherently flawed. For instance, a
2008 report by the Financial Stability Forum singled out methodological shortcomingsespecially inadequate
historical dataas a contributing cause in the underestimating of the risk in structured finance products by the
CRAs before the subprime mortgage crisis.
The rating agencies interest in pleasing the issuers of securities who are their paying customers and benefit from
high ratings, creates a conflict with their interest in providing accurate ratings of securities for investors buying
the securities. Issuers of securities benefit from higher ratings in that many of their customers retail banks,
pension funds, money market funds, insurance companies are prohibited by law, or otherwise restrained, from
buying securities below a certain rating.
The rating agencies may have been significantly understaffed during the subprime boom and thus unable to
properly assess every debt instrument.
Agency analysts may be underpaid relative to similar positions with investment banks and Wall Street firms,
resulting in a migration of credit rating analysts and the analysts' inside knowledge of rating procedures to higher
paying jobs at the banks and firms that issue the securities being rated, facilitating manipulation of ratings by
issuers.
The functional use of ratings as regulatory mechanisms may inflate their reputation for accuracy.
Excessive power
Conversely, the complaint has been made that agencies have too much power over issuers and that downgrades can
even force troubled companies into bankruptcy. The lowering of a credit score by a CRA can create a vicious cycle
and self-fulfilling prophecy, as not only interest rates for their securities rise, but other contracts with financial
institutions may be affected adversely, causing an increase in financing costs and ensuing decrease in credit
worthiness. Large loans to companies have often contained a clause that makes the loan due in full if the companies'
credit rating is lowered beyond a certain point (usually from investment grade to "speculative"). The purpose of these
"ratings triggers" is to ensure that the loan-making bank is able to lay claim to a weak company's assets before the
company declares bankruptcy and a receiver is appointed to divide up the claims against the company. The effect of
such ratings triggers, however, can be devastating: under a worst-case scenario, once the company's debt is
downgraded by a CRA, the company's loans become due in full; if the company is incapable of paying all of these
loans in full at once, it is forced into bankruptcy (a so-called "death spiral"). These rating triggers were instrumental
in the collapse of Enron. Since that time, major agencies have put extra effort into detecting these triggers and
discouraging their use, and the US SEC requires that public companies in the United States disclose their existence.
Reform laws
The 2010 DoddFrank Wall Street Reform and Consumer Protection Act mandated improvements to the regulation
of credit rating agencies, and addressed several issues relating to the accuracy of credit ratings specifically. Under
Dodd-Frank rules, agencies must publicly disclose how their ratings have performed over time, and must provide
additional information in their analyses so investors can make better decisions. An amendment to the act also
specifies that ratings arent protected by the First Amendment as free speech, but are fundamentally commercial in
character and should be subject to the same standards of liability and oversight as apply to auditors, securities
analysts and investment bankers. Implementation of this amendment has proven difficult due to conflict between the
SEC and the rating agencies. Economist magazine credits the free speech defence at least in part for the "41 legal
actions targeting S&P have been dropped or dismissed" since the crisis.
In the European Union, there is no specific legislation governing contracts between issuers and credit rating
agencies. General rules of contract law apply in full, although holding agencies liable for breach of contract is
Credit rating agency
8
difficult. In 2012, an Australian federal court held Standard & Poor's liable for inaccurate ratings.
Ratings use in structured finance
Credit rating agencies play a key role in structured financial transactions, a term that may refer to asset-backed
securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS),
collateralized debt obligations (CDOs), "synthetic CDOs", and derivatives.
Credit ratings for structured finance instruments may be distinguished from ratings for other debt securities in
several important ways.
These securities are more complex and an accurate prognoses of repayment more difficult than with other debt
ratings. This is because they are formed by pooling debt usually consumer credit assets, such as mortgages,
credit card or auto loans and structured by "slicing" the pool into multiple "tranches", each with a different
priority of payment. Tranches are often likened to buckets capturing cascading water, where the water of monthly
or quarterly repayment flows down to the next bucket (tranche) only if the one above has been filled with its full
share and is overflowing. The higher-up the bucket in the income stream, the lower its risk, the higher its credit
rating, and lower its interest payment. This means the higher-level tranches have more credit worthiness than
would a conventional unstructured, untranched bond with the same repayment income stream, and allows rating
agencies to rate the tranches triple A or other high grades. Such securities are then eligible for purchase by
pension funds and money market funds restricted to higher-rated debt, and for use by banks wanting to reduce
costly capital requirements.
[20]
CRAs are not only paid for giving ratings to structured securities, but may be paid for advice on how to structure
tranches and sometimes the underlying assets that secure the debt to achieve ratings the issuer desires. This
involves back and forth interaction and analysis between the sponsor of the trust that issues the security and the
rating agency. During this process, the sponsor may submit proposed structures to the agency for analysis and
feedback until the sponsor is satisfied with the ratings of the different tranches.
Credit rating agencies employ varying methodologies to rate structured finance products, but generally focus on
the type of pool of financial assets underlying the security and the proposed capital structure of the trust. This
approach often involves a quantitative assessment in accordance with mathematical models, and may thus
introduce a degree of model risk. However, bank models of risk assessment have proven less reliable than credit
rating agency models, even in the base of large banks with sophisticated risk management procedures.
Aside from investors mentioned abovewho are subject to ratings-based constraints in buying securitiessome
investors simply prefer that a structured finance product be rated by a credit rating agency. And not all structured
finance products receive a credit rating agency rating. Ratings for complicated or risky CDOs are unusual and some
issuers create structured products relying solely on internal analytics to assess credit risk.
Subprime mortgage boom and crisis
The Financial Crisis Inquiry Commission
[21]
has described the Big Three rating agencies as "key players in the
process" of mortgage securitization, providing reassurance of the soundness of the securities to money manager
investors with "no history in the mortgage business".
Credit rating agencies began issuing ratings for mortgage-backed securities (MBS) in the mid-1970s. In subsequent
years, the ratings were applied to securities backed by other types of assets. During the first years of the twenty-first
century, demand for highly rated fixed income securities was high. Growth was particularly strong and profitable in
the structured finance industry during the 2001-2006 subprime mortgage boom, and business with finance industry
accounted for almost all of the revenue growth at at least one of the CRAs (Moody's).
[22]
From 2000 to 2007, Moody's rated nearly 45,000 mortgage-related securities as triple-A. In contrast only six (private
sector) companies in the United States were given that top rating.
Credit rating agency
9
Rating agencies were even more important in rating collateralized debt obligations (CDOs). These securities
mortgage/asset backed security tranches lower in the "waterfall" of repayment that could not be rated triple-A, but
for whom buyers had to found or the rest of the pool of mortgages and other assets could not be securitized. Rating
agencies solved the problem by rating 70%
[23]
to 80%
[24]
of the CDO tranches triple-A. Still another innovative
structured product most of whose tranches were also given high ratings was the "synthetic CDO". Cheaper and easier
to create than ordinary "cash" CDOs, they paid insurance premium-like payments from credit default swap
"insurance", instead of interest and principal payments from house mortgages. If the insured or "referenced" CDOs
defaulted, investors lost their investment, which was paid out much like an insurance claim.
[25]
Conflict of interest
However when it was discovered that the mortgages had been sold to buyers who could not pay them, massive
numbers of securities were downgraded, the securitization "seized up" and the Great Recession ensued.
[26]
Critics blamed this underestimation of the risk of the securities on the conflict between two interests the CRAs
haverating securities accurately, and serving their customers, the security issuers who need high ratings to sell to
investors subject to ratings-based constraints, such as pension funds and life insurance companies. While this conflict
had existed for years, the combination of CRA focus on market share and earnings growth, the importance of
structured finance to CRA profits, and pressure from issuers who began to `shop around` for the best ratings brought
the conflict to a head between 2000 and 2007.
A small number of arrangers of structured finance productsprimarily investment banksdrive a large amount of
business to the ratings agencies, and thus have a much greater potential to exert undue influence on a rating agency
than a single corporate debt issuer.
A 2013 Swiss Finance Institute study of structured debt ratings from S&P, Moody's, and Fitch found that agencies
provide better ratings for the structured products of issuers that provide them with more overall bilateral rating
business. This effect was found to be particularly pronounced in the run-up to the subprime mortgage crisis.
Alternative accounts of the agencies' inaccurate ratings before the crisis downplay the conflict of interest factor and
focus instead on the agencies' overconfidence in rating securities, which stemmed from faith in their methodologies
and past successes with subprime securitizations.
In the wake of the global financial crisis, various legal requirements were introduced to increase the transparency of
structured finance ratings. The European Union now requires credit rating agencies to use an additional symbol with
ratings for structured finance instruments in order to distinguish them from other rating categories.
Ratings use in sovereign debt
Credit rating agencies also issue credit ratings for sovereign borrowers, including national governments, states,
municipalities, and sovereign-supported international entities. Sovereign borrowers are the largest debt borrowers in
many financial markets. Governments from both advanced economies and emerging markets borrow money by
issuing government bonds and selling them to private investors, either overseas or domestically. Governments from
emerging and developing markets may also choose to borrow from other governments and international
organizations, such as the World Bank and the International Monetary Fund.
Sovereign credit ratings represent an assessment by a rating agency of a sovereign's ability and willingness to repay
its debt. The rating methodologies used to asses sovereign credit ratings are broadly similar to those used for
corporate credit ratings, although the borrower's willingness to repay receives extra emphasis since national
governments may be eligible for debt immunity under international law, thus complicating repayment obligations. In
addition, credit assessments reflect not only the long-term perceived default risk, but also short or immediate term
political and economic developments. Differences in sovereign ratings between agencies may reflect varying
qualitative evaluations of the investment environment.
Credit rating agency
10
National governments may solicit credit ratings to generate investor interest and improve access to the international
capital markets. Developing countries often depend on strong sovereign credit ratings to access funding in
international bond markets. Once ratings for a sovereign have been initiated, the rating agency will continue to
monitor for relevant developments and adjust its credit opinion accordingly.
A 2010 International Monetary Fund study concluded that ratings were a reasonably good indicator of
sovereign-default risk. However, credit rating agencies were criticized for failing to predict the 1997 Asian financial
crisis and for downgrading countries in the midst of that turmoil. Similar criticisms emerged after recent credit
downgrades to Greece, Ireland, Portugal, and Spain, although credit ratings agencies had begun to downgrade
peripheral Eurozone countries well before the Eurozone crisis began.
Conflict of interest in assigning sovereign ratings
It has also been suggested that the credit agencies are conflicted in assigning sovereign credit ratings since they have
a political incentive to show they do not need stricter regulation by being overly critical in their assessment of
governments they regulate.
As part of the Sarbanes-Oxley Act of 2002, Congress ordered the U.S. SEC to develop a report, titled "Report on the
Role and Function of Credit Rating Agencies in the Operation of the Securities Markets"
[27]
detailing how credit
ratings are used in U.S. regulation and the policy issues this use raises. Partly as a result of this report, in June 2003,
the SEC published a "concept release" called "Rating Agencies and the Use of Credit Ratings under the Federal
Securities Laws"
[28]
that sought public comment on many of the issues raised in its report. Public comments
[29]
on
this concept release have also been published on the SEC's website.
In December 2004, the International Organization of Securities Commissions (IOSCO) published a Code of
Conduct
[30]
for CRAs that, among other things, is designed to address the types of conflicts of interest that CRAs
face. All of the major CRAs have agreed to sign on to this Code of Conduct and it has been praised by regulators
ranging from the European Commission to the US SEC.
Use by government regulators
Regulatory authorities and legislative bodies in the United States and other jurisdictions rely on credit rating
agencies' assessments of a broad range of debt issuers, and thereby attach a regulatory function to their ratings. This
regulatory role is a derivative function in that the agencies do not publish ratings for that purpose. Governing bodies
at both the national and international level have woven credit ratings into minimum capital requirements for banks,
allowable investment alternatives for many institutional investors, and similar restrictive regulations for insurance
companies and other financial market participants.
The use of credit ratings by regulatory agencies is not a new phenomenon. In the 1930s, regulators in the United
States used credit rating agency ratings to prohibit banks from investing in bonds that were deemed to be below
investment grade. In the following decades, state regulators outlined a similar role for agency ratings in restricting
insurance company investments. From 1975 to 2006, the U.S. Securities and Exchange Commission (SEC)
recognized the largest and most credible agencies as Nationally Recognized Statistical Rating Organizations, and
relied on such agencies exclusively for distinguishing between grades of creditworthiness in various regulations
under federal securities laws. The Credit Rating Agency Reform Act of 2006 created a voluntary registration system
for CRAs that met a certain minimum criteria, and provided the SEC with broader oversight authority.
The practice of using credit rating agency ratings for regulatory purposes has since expanded globally. Today,
financial market regulations in many countries contain extensive references to ratings. The Basel III accord, a global
bank capital standardization effort, relies on credit ratings to calculate minimum capital standards and minimum
liquidity ratios.
The extensive use of credit ratings for regulatory purposes can have a number of unintended effects. Because
regulated market participants must follow minimum investment grade provisions, ratings changes across the
Credit rating agency
11
investment/non-investment grade boundary may lead to strong market price fluctuations and potentially cause
systemic reactions. The regulatory function granted to credit rating agencies may also adversely affect their original
market information function of providing credit opinions.
Against this background and in the wake of criticism of credit rating agencies following the subprime mortgage
crisis, legislators in the United States and other jurisdictions have commenced to reduce rating reliance in laws and
regulations. The 2010 DoddFrank Act removes statutory references to credit rating agencies, and calls for federal
regulators to review and modify existing regulations to avoid relying on credit ratings as the sole assessment of
creditworthiness.
Industry structure
The Agencies
The three largest credit rating agenciesStandard & Poor's, Moody's Investor Service, and Fitch Ratingsare
collectively referred to as the "Big Three" due to their substantial market share. In a 2012 report, the US SEC
calculated that the three agencies together accounted for approximately 96% of all credit ratings. In 2011, Deutsche
Welle reckoned their "collective market share" at "roughly 95%".
As of December 2012, S&P is the largest of the three, with 1.2 million outstanding ratings and 1,416 analysts and
supervisors; Moody's has 1 million outstanding ratings and 1,252 analysts and supervisors; and Fitch is the smallest,
with approximately 350,000 outstanding ratings, and is sometimes used as an alternative to S&P and Moodys.
The three largest agencies are not the only sources of credit information. Many smaller rating agencies also exist,
mostly serving non-US markets. All of the large securities firms have internal fixed income analysts who offer
information about the risk and volatility of securities to their clients. And specialized risk consultants working in a
variety of fields offer credit models and default estimates.
Market share concentration is not a new development in the credit rating industry. Since the establishment of the first
agency in 1909, there have never been more than four credit rating agencies with significant market share. Even the
2008 financial crisiswhere the performance of the three rating agencies was dubbed "horrendous" by the
Economist magazineled to a drop in the share of the three by just one percentfrom 98 to 97%.
[31]
The reason for the concentrated market structure is disputed. One widely cited opinion is that the Big Three's
historical reputation within the financial industry creates a high barrier of entry for new entrants. Following the
enactment of the Credit Rating Agency Reform Act of 2006 in the US, seven additional rating agencies attained
recognition from the SEC as Nationally Recognized Statistical Rating Organizations (NRSROs). While these other
agencies remain niche players, some have gained market share following the 2008 financial crisis, and in October
2012 several announced plans to join together and create a new organization called the Universal Credit Rating
Group. The European Union has considered setting up a state-supported EU-based agency.
[32]
Business models
Credit rating agencies generate revenue from a variety of activities related to the production and distribution of credit
ratings. The sources of the revenue are generally the issuer of the securities or the investor. Most agencies operate
under one or a combination of business models: the subscription model and the issuer-pays model. However,
agencies may offer additional services using a combination of business models.
Under the subscription model, the credit rating agency does not make its ratings freely available to the market, so
investors pay a subscription fee for access to ratings. This revenue provides the main source of agency income,
although agencies may also provide other types of services. Under the issuer-pays model, agencies charge issuers a
fee for providing credit rating assessments. This revenue stream allows issuer-pays credit rating agencies to make
their ratings freely available to the broader market, especially via the Internet.
Credit rating agency
12
The subscription approach was the prevailing business model until the early 1970s, when Moody's, Fitch, and finally
Standard & Poor's adopted the issuer-pays model. Several factors contributed to this transition, including increased
investor demand for credit ratings, and widespread use of information sharing technologysuch as fax machines
and photocopierswhich allowed investors to freely share agencies reports and undermined demand for
subscriptions. Today, eight of the nine nationally recognized statistical rating organizations (NRSRO) use the
issuer-pays model, only Egan-Jones maintains an investor subscription service. Smaller, regional credit rating
agencies may use either model. For example, China's oldest rating agency, Chengxin Credit Management Co., uses
the issuer-pays model. The Universal Credit Ratings Group, formed by Beijing-based Dagong Global Credit Rating,
Egan-Jones of the U.S. and Russias RusRatings claimed they are going to uses the investor-pays model.
Critics argue that the issuer-pays model creates a potential conflict of interest because the agencies are paid by the
organizations whose debt they rate. However, the subscription model is also seen to have disadvantages, as it
restricts the ratings' availability to paying investors. Issuer-pays CRAs have argued that subscription-models can also
be subject to conflicts of interest due to pressures from investors with strong preferences on product ratings. In 2010
Lace Financials, a subscriber-pays agency later acquired by Kroll Ratings, was fined by the SEC for violating
securities rules to the benefit of its largest subscriber.
A 2009 World Bank report proposed a "hybrid" approach in which issuers who pay for ratings are required to seek
additional scores from subscriber-based third parties. Other proposed alternatives include a "public-sector" model in
which national governments fund the rating costs, and an "exchange-pays" model, in which stock and bond
exchanges pay for the ratings. Crowd-sourced, collaborative models such as Wikirating have been suggested as an
alternative to both the subscription and issuer-pays models, although it is a recent development as of the 2010, and
not yet widely used.
Oligopoly produced by regulation
Agencies are sometimes accused of being oligopolists, because barriers to market entry are high and rating agency
business is itself reputation-based (and the finance industry pays little attention to a rating that is not widely
recognized). In 2003, the US SEC submitted a report to Congress detailing plans to launch an investigation into the
anti-competitive practices of credit rating agencies and issues including conflicts of interest.
Think-tanks such as the World Pensions Council (WPC) have argued that the Basel II/III capital adequacy norms
favored at first essentially by the central banks of France, Germany and Switzerland (while the US and the UK were
rather lukewarm) have unduly encouraged the use of ready-made opinions produced by oligopolistic rating agencies
[33]
Of the large agencies, only Moody's is a separate, publicly held corporation that discloses its financial results without
dilution by non-ratings businesses, and its high profit margins (which at times have been greater than 50 percent of
gross margin) can be construed as consistent with the type of returns one might expect in an industry which has high
barriers to entry.
[34]
Celebrated investor Warren Buffet described the company as a natural duopoly, with
incredible pricing power, when asked by the Financial Crisis Inquiry Commission about his ownership of 15% of
the company.
[35]
According to professor Frank Partnoy, the regulation of CRAs by the SEC and Federal Reserve Bank has eliminated
competition between CRAs and practically forced market participants to use the services of the three big agencies,
Standard and Poor's, Moody's and Fitch.
[36]
SEC Commissioner Kathleen Casey has said that these CRAs have acted much like Fannie Mae, Freddie Mac and
other companies that dominate the market because of government actions. When the CRAs gave ratings that were
"catastrophically misleading, the large rating agencies enjoyed their most profitable years ever during the past
decade."
To solve this problem, Ms. Casey (and others such as NYU professor Lawrence White) have proposed removing the
NRSRO rules completely. Professor Frank Partnoy suggests that the regulators use the results of the credit risk swap
Credit rating agency
13
markets rather than the ratings of NRSROs.
The CRAs have made competing suggestions that would, instead, add further regulations that would make market
entrance even more expensive than it is now.
[]
References
[1] http:/ / en. wikipedia. org/ w/ index. php?title=Template:Corporate_finance& action=edit
[2] A debt instrument is any type of documented financial obligation. A debt instrument makes it possible to transfer the ownership of debt so it
can be traded. (source: wisegeek.com (http:/ / www.wisegeek. com/ what-is-a-debt-instrument. htm))
[3] For example, in the US, a state government which shares the credit responsibility for a Municipal bond issued by a municipal government
entities but under the control of that state government entity. (source: Campbell R. Harvey's (http:/ / people. duke. edu/ ~charvey/ Classes/
wpg/ bfglosu.htm) Hypertextual Finance Glossary)
[4] $300 billion collateralized debt obligations (CDOs) issued in 2005-2007 (over half of the CDOs by value during that time period) that rating
agencies gave their highest "triple-A" rating to, were written-down to "junk" by the end of 2009. (source: )
[5] McLean, Bethany and Joe Nocera. All the Devils Are Here, the Hidden History of the Financial Crisis, Portfolio, Penguin, 2010 (p.111)
[6] http:/ / www. buynowpaylatersites. net/ buy-now-pay-later-sites-the-history-of-personal-credit/
[7] Alvin Toffler, Powershift: Knowledge, wealth, Violence at the Edge of the 21st Century, NY, Bantam, 1990, pages 43-57
[8] Outstanding World Bond Market Debt (http:/ / www.aametrics. com/ pdfs/ world_stock_and_bond_markets_nov2009. pdf) from the Bank
for International Settlements via Asset Allocation Advisor. Original BIS data as of March 31, 2009; Asset Allocation Advisor compilation as
of November 15, 2009. Accessed January 7, 2010.
[9] Status quo for rating agencies (http:/ / media.mcclatchydc. com/ smedia/ 2013/ 08/ 07/ 18/ 16/ 15IKTY. La. 91. jpg) (chart of percentage of
outstanding credit ratings reported to the SEC 2007 and 2011; and Moody's revenue and income 1996, 2000, 2010, 2012)| mcclatchydc.com
[10] from Altman, Edward I "Measuring Corporate Bond Mortality and Performance" Journal of Finance, (September 1989) p.909-22
[11] [11] Note: Based on equally weighted averages of monthly spreads per rating category. Spreads for BB and B represent data from 1979-87 only,
spreads for CCC, data for 1982-87 only.
[12] Cantor, R., Hamilton, D.T., Kim, F., and Ou, S., 2007 Corporate default and recovery rates. 1920-2006, Special Comment: Moody's investor
Service, June Report 102071, 1-48 page 24
[13] McLean and Nocera, All the Devils Are Here, 2010, p.119
[14] [14] (according to the head of the SEC),
[15] [15] (Chairman of the Financial Crisis Inquiry Commission Chairman, Phil Angelides)
[16] Financial Crisis Inquiry Report, figure 11.2, p.217
[17] The downgrade was precipitated by Warren Buffett's telling CNBC that he had "passed on an opportunity to help the troubled mortgage
giant".
[18] Kliger, D. and O. Sarig (2000), "The Information Value of Bond Ratings", Journal of Finance, December: 2879-2902
[19] Galil, Koresh (2003). The quality of corporate credit rating: An empirical investigation. EFMA 2003 Helsinki Meetings. European Financial
Management Association.
[20] McLean, and Nocera. All the Devils Are Here, 2010 (p.111)
[21] [21] set up by the US Congress and President to investigate the causes of the crisis, and publisher of the Financial Crisis Inquiry Report (FCIR)
[22] In the case of the one CRA that was a separate public company -- Moody's -- "Between the time it was spun off into a public company and
February 2007, its stock had risen 340%. Structured finance was approaching 50% of Moody's revenue -- up from 28% in 1998. It accounted
for pretty much all of Moody's growth."|McLean and Nocera, All the Devils Are Here, 2010 (p.124)
[23] 70%. "Firms bought mortgage-backed bonds with the very highest yields they could find and reassembled them into new CDOs. The
original bonds ... could be lower-rated securities that once reassembled into a new CDO would wind up with as much as 70% of the tranches
rated triple-A. Ratings arbitrage, Wall Street called this practice. A more accurate term would have been ratings laundering." (source: McLean
and Nocera, All the Devils Are Here, 2010 p.122)
[24] 80%. "In a CDO you gathered a 100 different mortgage bonds usually the riskiest lower floors of the original tower ...... They bear a
lower credit rating triple B. ... if you could somehow get them rerated as triple A, thereby lowering their perceived risk, however dishonestly
and artificially. This is what Goldman Sachs had cleverly done. is was absurd. The 100 buildings occupied the same floodplain; in the event of
flood, the ground floors of all of them were equally exposed. But never mind: the rating agencies, who were paid fat fees by Goldman Sachs
and other Wall Street firms for each deal they rated, pronounced 80% of the new tower of debt triple-A." (source: Michael Lewis, The Big
Short : Inside the Doomsday Machine WW Norton and Co, 2010, p.73)
[25] "Unlike the traditional cash CDO, synthetic CDOs contained no actual tranches of mortgage-backed securities ... in the place of real
mortgage assets, these CDOs contained credit default swaps and did not finance a single home purchase." (source: The Financial Crisis
Inquiry Report, 2011, p.142)
[26] Brookings Institute U.S. Financial and Economic Crisis June 2009 PDF Page 14 (http:/ / www. brookings. edu/ papers/ 2009/
0615_economic_crisis_baily_elliott.aspx)
[27] SEC.gov (http:/ / www. sec. gov/ news/ studies/ credratingreport0103. pdf)
[28] SEC.gov (http:/ / www. sec. gov/ rules/ concept/ 33-8236. htm)
Credit rating agency
14
[29] http:/ / www.sec. gov/ rules/ concept/ s71203.shtml
[30] IOSCO.org (http:/ / www. iosco. org/ library/ pubdocs/ pdf/ IOSCOPD180. pdf)
[31] In the 12 months that ended in June 2011, the SEC reported that the big three issued 97% of all credit ratings, down only 1% from 98% in
2007. (sources: ; Status quo for rating agencies (http:/ / media. mcclatchydc. com/ smedia/ 2013/ 08/ 07/ 18/ 16/ 15IKTY. La. 91. jpg) (chart of
percentage of outstanding credit ratings reported to the SEC 2007 and 2011; and Moody's revenue and income 1996, 2000, 2010, 2012)|
mcclatchydc.com
[32] The Times, 3 June 2010, Europe launches credit ratings offensive (http:/ / business. timesonline. co. uk/ tol/ business/ industry_sectors/
banking_and_finance/ article7142915.ece)
[33] M. Nicolas J. Firzli, "A Critique of the Basel Committee on Banking Supervision" Revue Analyse Financire, Nov. 10 2011 & Q2 2012
[34] Dagong, the new Chinese bad guy or a fair player ? (http:/ / www. another-rating. org/ 2012/ 03/ dagong-new-bad-chinese-or-just. html),
SACR, 21 mars 2012.
[35] Buffet explained that pricing power was what was important in his purchase of Moody's stock. `... he knew nothing about the management
of Moodys. I had no idea. Id never been at Moodys, I dont know where they are located.` (source: The Financial Crisis Inquiry Report
(http:/ / www. gpo.gov/ fdsys/ pkg/ GPO-FCIC/ pdf/ GPO-FCIC. pdf))
[36] A Triple-A IdeaEnding the rating oligopoly (http:/ / online. wsj. com/ article/ SB123976320479019717. html), Wall Street Journal, April
15, 2009
Further reading
On the history and origins of credit agencies, see Born Losers: A History of Failure in America, by Scott A.
Sandage (Harvard University Press, 2005), chapters 46.
On contemporary dynamics, see Timothy J. Sinclair, The New Masters of Capital: American Bond Rating
Agencies and the Politics of Creditworthiness (Ithaca, NY: Cornell University Press, 2005).
For a description of what CRAs do in the corporate context, see IOSCO Report on the Activities of Credit Rating
Agencies (http:/ / www. iosco. org/ library/ pubdocs/ pdf/ IOSCOPD153. pdf) and IOSCO Statement of Principles
Regarding the Activities of Credit Rating Agencies (http:/ / www. iosco. org/ library/ pubdocs/ pdf/
IOSCOPD151. pdf).
On the limits of the current 'Issuer-pays' business model, see Kenneth C. Kettering, Securization and its
discontents: The Dynamics of Financial Product Development, 29 CDZLR 1553, 60 (2008).
For a renewed approach of CRAs business model, see Vincent Fabi, A Rescue Plan for rating Agencies, Blue
SkyNew Ideas for the Obama Administration ideas.berkeleylawblogs.org (http:/ / ideas. berkeleylawblogs. org/
2009/ 04/ 19/ a-rescue-plan-for-rating-agencies/ ).
Frank J. Fabozzi and Dennis Vink (2009). "On securitization and over-reliance on credit ratings". Yale
International Center for Finance. (http:/ / papers. ssrn. com/ sol3/ papers. cfm?abstract_id=1431994)
For a theoretical analysis of the impact of regulation on rating agencies' business model, see Rating Agencies in
the Face of RegulationRating Inflation and Regulatory Arbitrage, by Opp, Christian C., Opp, Marcus M. and
Harris, Milton (2010). (http:/ / ssrn. com/ abstract=1540099)
Analysts and ratings = chapter 14 in Stocks and Exchange the only Book you need, Ladis Konecny, 2013, ISBN
9783848220656
External links
Securities Exchange Commission Office of Credit Ratings (http:/ / www. sec. gov/ about/ offices/ ocr. shtml)
Securities Industry and Financial Markets Association (http:/ / www. sifma. org), SIFMA
Article Sources and Contributors
15
Article Sources and Contributors
Credit rating agency Source: http://en.wikipedia.org/w/index.php?oldid=598985533 Contributors: 90 Auto, A2-33, Ace Frahm, AdventurousSquirrel, AndrewWatt, Antaeus Feldspar,
Antiqueight, Ariela96, Arjayay, Arthena, Atlantia, Authoress, B.Andersohn, BD2412, BOBOlite, Baei390, Bedya, Benbest, Bgwhite, Bluenik, Bobrayner, Booba1058, BoogaLouie, Camels5,
Chivista, Chris the speller, Chrism, ChuckBiggs2, Compuscan, CorporateM, Cruks, DMG413, Dancter, Dauphin, Deetdeet, Dewritech, Dezastru, Diamondland, Digitaldossier, Dilaudid,
Doberek, DocWatson42, DocendoDiscimus, Dogaroon, Dominiklenne, DowDiamond, Download, Drawn27, Drewwiki, Dthomsen8, Ducksfordollars, Dwagner20, EagleOne, Edward, Efmcw103,
Elaqueate, Epstein's Mother, Eralis, Erianna, ErrantX, Everyking, Feco, Finnancier, Forp, FxHVC, Gallowolf, Geporto, Gizziiusa, Gnyus, Grace Note, GraemeL, Greatuniverse2010, Ground
Zero, Guy Harris, Guy Macon, HMSSolent, Hadal, HangingCurve, HaaRoa, Headbomb, Henrygb, Hu12, Hussainul, Icairns, ImperfectlyInformed, InaVal, Indiabuff, Int21h, JForget,
Jamesinderbyshire, Japanese Searobin, JeanYves, Jehnavi, Jerryseinfeld, Joel7687, John of Reading, John wesley, JohnSawyer, Joseph Solis in Australia, Khazar2, Khym Chanur, Kinamdar,
Koavf, Ksyrie, Kuru, Lambiam, Lamro, Laurusnobilis, Lectonar, Legis, Levineps, Lilahrap, Lisiate, LittleT889, Loodog, Lotje, M.grootveld, Mar4d, Mhr2cool, Mrnett1974, Mysidae, Natahere,
Necrosiz, Nelson50, Neptune5000, Nick Number, NoGutsNoGlory, Nterziev, Nwlaw63, Nyc393, O1ive, Ohnoitsjamie, Pass a Method, PaulHanson, Pearle, Protonk, Pruette, PunkyMcPunkersen,
Quarl, Quibik, Rainer Wasserfuhr, Rchamberlain, Rd232, Reinderien, Rhobite, Rich Farmbrough, Rjwilmsi, Roadrunner, Robomod, Romaine, Ronz, Ruby Murray, RulerofKnowledge, Ruslik0,
SDC, Sanhedran, ShelfSkewed, Shubh.sbk, Skiasaurus, Sledge 1981, Solarra, Spiderman Sudoku, Spitzl, Stakamasa, Stevenson7869, Stifle, Suburbanslice, SusanLesch, Swliv, Taffenzee,
Tahoepark, Teachanewdog, Techartist, Texture, That Guy, From That Show!, Theuniversalknowledge, Thomas Larsen, Timothy Cooper, TomB123, Tommy2010, Vcelloho, VelocityRun,
Versageek, Vhmtap, VodkaJazz, Wahnee86, Welsh, Wickifrank, Wikidea, Wikiuser13, Wk muriithi, Woohookitty, Y, YORD-the-unknown, Zanter, Zigzig20s, , 260 anonymous edits
Image Sources, Licenses and Contributors
File:Panorama clip3.jpg Source: http://en.wikipedia.org/w/index.php?title=File:Panorama_clip3.jpg License: GNU Free Documentation License Contributors: Avron, Ichabod, Jatkins,
Krnerbrtchen, Nikopoley, Rob T Firefly, , 5 anonymous edits
License
Creative Commons Attribution-Share Alike 3.0
//creativecommons.org/licenses/by-sa/3.0/