Actually, I dont base so much on the rating as much as I do the written analytical reports. The coverage ratios the future expenses etc. These are generally quite accurate as they are working with the company to know future plans etc. I have found that these to be very spot on...The trends the EBITA, the stock buybacks etc. Company goes to credit ratings to evaluate the effects these things have. If you read the running reports you see the trend occurring over periods of time with or without the actual rating itself.
I LOVE YOUR WORK MULLY and really value your opinon, top of anyone on the boards but I have to disagree, I have never known the credit reports to alert to anything ahead of time, whether in 2007, the 2014-2015 oil price collapse - in the middle of that oil companies were selling billions of debt while their business was collapsing. I think the ratings work at 10,000 feet or at a company with an ongoing plan.
FITCH downgraded WeWork to CCC two notches AFTER the fiasco of softbank occurred ----- in 2018 they rated them B3 with stable outlook. This despite the fact that WeWork could never operate without additional lending, giving someone a Saleable credit rating because they should be able to get billions in financing that depends on the credit rating is a ridiculous situation.
S&P gave WeWork a solid B stating "S&P Global Ratings assigned a B corporate credit rating to New York-based WeWork Cos., with a stable outlook.S&P's expectation that WeWork will maintain substantial cash balances while effectively managing its growth." WeWork failed because investor's actually read their financial statements and questioned the jungle of intercompany bull and self dealing. S&P actually offered to create a We50 social responsible stock index (how totally fitting) in exchange for working on their initial offerings.
Moody's first cut Bank of America's rating in April of 2008 to an AA2 - in the category of very best credit risk, at a price of 38 Value Line on November 10 2007 with BOA stock at price of 48 put Bank of America's safety rating in the bottom 25% of all corporations. In late March 2009 Moody's cut Bank of America's rating again to A1 with the stock at 7.
General Electric was cut two notches by Moody's on October 31st 2018 after completing a 80% drop in stock price from it's intermediate high. Value Line had cut the rating 18 months earlier, and was a key in my indicating SELL on the GE thread.
Moody's put Lehman Brothers' investment-grade A2 rating "on review" a mere five days before it filed for bankruptcy.
Moody's and Fitch didn't remove the MF Global's investment-grade rating until a measly six days before it filed for bankruptcy protection. And Standard & Poor's waited until the day of MF Global's filing to downgrade the then-defunct broker.
Enron was rated investment grade 4 days before filling for bancruptcy.
And both Fannie Mae and Freddie Mac had highly coveted AAA ratings at the time they were forced into conservatorship.
Bear Stearns had a credit rating of AA two days before filing for bancruptcy.
All of these companies had major downgrades MONTHS before by Value Line in there Safety and Financial Strength ratings.
It is nice to know in a stable situation where the credit ratings view the company because it should be an aid in pricing. But 50% of the investment grade companies today have no business being investment grade, I have zero faith in the rating's agencies at all.
By the time companies have been downgraded, the accountants have used up all their tricks and so the reality is visible to all, one must get out well before then because usually there is only days after the situation becomes officially known, the assumption is always the accountants have more tricks up their sleeve. Perfect example would be GE.
But perhaps the reports are more valuable and actually have the information I would need to view these companies as junk, despite investment grade ratings. I will stay open to that thought.
