A shadow rating is a credit rating used by companies to evaluate the attractiveness of a proposed debt issue to investors. It is prepared by a credit bureau and can help companies decide when to issue bonds based on market conditions. The rating is not available to investors but may be made public by the issuer at a later date.
A shadow rating is a type of credit rating that helps companies determine how well a proposed debt issue would be attractive to investors, should that issue ever come to market. This rating is normally prepared by a recognized credit bureau, but is not available to potential investors. Companies will often use this resource when evaluating whether a bond or other debt issuance is likely to achieve its intended purpose. This rating can also be useful in helping a company decide when to issue the bond, based on current economic circumstances and prevailing market conditions.
The shadow rating is also used as a means of evaluating bonds that are not eligible to trade in a secondary market. In this case, the bond rating is often done by Standard & Poor’s, with the S&P rating available to the issuer. The credit rating in turn is made available to potential investors who have expressed some interest in the bond issue.
Based on the results of a shadow rating, the bond issue may be abandoned or simply delayed for a period of time. In situations where the underlying reasons for the rating indicate that investors are less likely to purchase the debt issue under the current economic climate, delaying the release of the bond until weather changes can be considered in the best interest of the issuer over the long term. term. If the results indicate that the bond issue is likely to earn less than sufficient interest, regardless of the general state of the economy, the issuer may choose to rework the bond before going ahead with the issue, or possibly decide to seek some other means of generate income.
Although a hidden rating is not disclosed to the general public at the time it is prepared, the issuer of the bond may choose to make the information public at a later date. This sometimes occurs after the decision to proceed with the bond issuance has been made, and the issuer believes that disclosing the rating will have a positive effect on investor response to the new bond. For example, if the shadow rating for a given bond was highly favorable, the issuer may choose to share the information in a public setting to draw attention to that rating. This is especially true if the rating service or agency that rated the bond is highly respected among investors.
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