Definition§
Not Rated (NR): A designation used by credit rating agencies and business information providers to indicate that no formal rating has been assigned to a security or company. This status implies a lack of evaluation rather than an evaluation of risk or stability.
Examples§
- Corporate Bond: A corporate bond issued by a new company has no previous track record, causing Moody’s to list it as Not Rated (NR) until sufficient data is available for a proper rating.
- Startup Company: A startup that has recently commenced operations might not yet be evaluated by Dun & Bradstreet, resulting in an NR status in business credit reports.
Frequently Asked Questions (FAQs)§
Why would a security or company be Not Rated (NR)?§
A security or company might be Not Rated (NR) due to lack of sufficient financial information, short operational history, or choice by the issuer not to seek a formal rating.
Does an NR designation mean the security or company is low-quality or risky?§
No, an NR designation does not inherently suggest that a security or company is low-quality or risky. It simply indicates that no formal rating assessment has been undertaken.
Can a Not Rated (NR) status change over time?§
Yes, as more financial data or operational history becomes available, rating agencies can perform evaluations and assign ratings, thus changing the NR status.
Are businesses required to obtain a rating?§
No, businesses are not mandated to obtain a rating. Obtaining a rating is often a strategic decision based on the perceived benefits regarding investor confidence and cost of capital.
How can investors assess NR securities or companies?§
Investors need to perform their due diligence, analyzing financial statements, market positioning, and overall business health to mitigate potential risks associated with NR securities or companies.
Related Terms§
Credit Rating§
A formal evaluation of a borrower’s creditworthiness, typically expressed as a letter grade (e.g., AAA, BBB) provided by rating agencies.
Issuer§
An entity that develops, registers, and sells securities for the purpose of financing its operations.
Rating Agency§
An organization that evaluates the creditworthiness of individuals, corporations, and government entities and assigns ratings.
Creditworthiness§
A measure of a borrower’s ability to repay debt based on past financial behavior and current financial health.
Risk Assessment§
The identification, analysis, and evaluation of risks associated with an investment or financial decision.
Online References§
Suggested Books for Further Studies§
- “Credit Ratings: Methodologies, Rationale and Default Risk” by Michael K. Ong
- “The Essentials of Risk Management” by Michel Crouhy, Dan Galai, and Robert Mark
- “Fundamentals of Credit and Credit Analysis; Corporate Credit Analysis” by Arnold Ziegel
Fundamentals of Not Rated (NR): Finance Basics Quiz§
Thank you for exploring the intricacies of the Not Rated (NR) designation and challenging yourself with our finance basics quiz. Keep enhancing your financial expertise!
