A credit rating is an independent agency's opinion of how likely a borrower is to meet its debt obligations in full and on time. It is expressed on a letter scale running from AAA, the strongest, down to D for default. Ratings of BBB- (Moody's Baa3) and above are investment grade, and anything below is speculative grade, also called high yield. In the UK, agencies that issue ratings for regulatory purposes must be registered or certified with the Financial Conduct Authority.
What a credit rating is and who issues it
UK law defines a credit rating as an opinion on the creditworthiness of an entity, a debt or a financial instrument, issued using an established and defined ranking system of rating categories. HMRC's international manual distinguishes two kinds:
- Issuer rating. Reflects the whole of the borrower's credit risk, meaning the risk of default on any of its borrowing;
- Issue rating. Reflects the credit risk of a specific bond or loan, which can sit above or below the issuer's rating depending on security, seniority and guarantees.
The borrower normally commissions and pays for the rating. That is why rated companies tend to be those that borrow in public debt markets. Most owner-managed businesses never have a formal agency rating. What lenders and suppliers use for them is a commercial credit score built from filed accounts and payment data, which works differently and is covered in our guide to business credit.
The FCA's published list of registered and certified agencies includes Fitch Ratings, Moody's Investors Service, S&P Global Ratings UK, DBRS Ratings, Scope Ratings UK, Kroll Bond Rating Agency UK, ARC Ratings and A.M. Best, with several overseas agencies certified rather than registered. The list does not supersede the Financial Services Register, which remains the authoritative record.
The rating scale
S&P and Fitch use similar letter scales, and Moody's uses its own notation. Within each band, a plus or minus (or a 1, 2 or 3 at Moody's) shows relative standing.
| S&P / Fitch | Moody's | Meaning |
|---|---|---|
| AAA | Aaa | Highest rating; extremely strong capacity to repay |
| AA+ to AA- | Aa1 to Aa3 | Very strong capacity to repay |
| A+ to A- | A1 to A3 | Strong capacity, but more susceptible to adverse change |
| BBB+ to BBB- | Baa1 to Baa3 | Adequate capacity; the lowest investment grade band |
| BB+ to B- | Ba1 to B3 | Speculative grade |
| CCC to C | Caa to C | Predominantly speculative; extremely vulnerable at CCC |
| D | – | In default or with payments in arrears |
The line between BBB- and BB+ matters more than any other on the scale. HMRC's guidance notes that the market for speculative grade debt is smaller and substantially less liquid, and that many institutional investors restrict themselves to investment grade. A downgrade across that line narrows the pool of willing lenders, and HMRC notes that a speculative grade debt issue risks not being fully subscribed.
How agencies arrive at a rating
According to HMRC's summary of agency practice, the analysis combines quantitative and qualitative factors:
- Track record. Past performance of the business;
- Market position. Market share, pricing power and cost control;
- Cash generation. Forecast profitability and cash flow, because future cash is what services interest and repays principal;
- Gearing. The proportion of funding provided by debt rather than equity. Generally, higher gearing produces a lower rating;
- Qualitative factors. Management quality, industry risk and cyclicality, guarantees or other credit enhancement, and the currency of the debt.
Rating decisions are usually taken by a committee rather than a single analyst. Ratings are kept under review and change when the issuer's risk profile changes, for example after a merger or a revenue shortfall.
How credit ratings are regulated in the UK
Credit rating agencies operating in the UK are supervised by the FCA under the UK Credit Rating Agencies Regulation, the UK version of Regulation (EC) No 1060/2009, which now forms part of assimilated law. Anyone who wants to issue credit ratings in the UK for regulatory purposes, whether publicly or by subscription, must be registered or certified. UK firms that use ratings for regulatory purposes, for example in calculating capital requirements, must use ratings issued or endorsed by a UK registered or certified agency. The FCA publishes individual ratings and press releases on its Public Ratings Database.
The Financial Services and Markets Act 2023 lists the CRA Regulation among the retained EU laws to be revoked. At October 2026, legislation.gov.uk still shows that revocation as a future change that has not yet taken effect, so the existing regime continues to apply.
Where credit ratings matter for private companies
Even unrated businesses run into ratings in three common situations:
- Counterparty limits. Many treasury policies cap deposits with banks below a set rating, so a bank downgrade can force a business to move cash;
- Intra-group loans. To support an arm's length interest rate on a group loan, groups often present an in-house or synthetic credit rating built with agency-style models. HMRC accepts that these can give a reasonable ballpark estimate if properly prepared, but it will test the method, data and assumptions, and it looks at the borrower on a standalone basis;
- Customer and supplier risk. Where a major customer or supplier is rated, a downgrade is an early warning to review credit terms and exposure.
Sources: FCA: credit rating agencies; UK CRA Regulation, article 3; HMRC INTM524010, INTM524020, INTM524040, INTM524050 and INTM524070. See also our guide to debt advisory.
Acumon helps groups document intra-group financing through our international tax team, and advises on lender relationships and funding structure as part of advisory work.