SONY rating cut again by S&P. *Update: Moodys follow suit.

[the2real4mafol]

kowenicki said:

the2real4mafol said:

CChaos said:

the2real4mafol said:
They are just credit rating companies, what's the big deal?

They are actually a very big deal. Standard and Poor's, Moody's and Fitch Ratings are considered 'The Big Three', which are the three most prominent rating companies around. Basically, if they speak, others listen, because they are the ones who rate corporations and countries alike. When the ratings for those three go down, the interest rates on debt and borrowing costs rise, sometimes a great deal, and which means that the company in question will require more money to pay back the totals, because of those larger interest rates.

Basically, a company's credit rating isn't that much different than a normal person's. If you have a bad rating, you won't be able to manage some things (like buying a car or house on credit) and, when you do, they'll see you as higher risk and will make you pay back more because of that risk. Here's a link to explanations on credit ratings and how they work.

http://www.investopedia.com/articles/00/091800.asp#axzz29OgOtmIA

Same thing for a company, but instead of having to pay a few hundred dollars more per month on your mortgage, we're talking the realm of tens of billions of dollars. That usually means that return pay on the debt is billions as well when your credit rating is bad enough. Basically, it amounts to 'the lower your rating, the more of your profit you're paying into payments and interest on your debt'.

I've heard of S&P, moodys etc. and know what they did basically but just don't really see the point in their existence. It's make the competition between countries or companies even more unfair than it should do in my view, even if a company like sony is in bad shape financially, all they seem to do is, make it harder for a company like sony to recover, while say microsoft or apple continue to grow rapidly, as they get a big advantage from sony's weak position. In terms of countries, it's the same thing America and Europe get it easy, while Africa which was not given a chance is left poor and without investment. I guess I don't understand how the financial system works, but it don't seem to fair to me

No you dont.

 

The reason for the ratings agencies is to PROTECT lenders and investors.  if the rating agencies think a company is at greater risk of defaulting on debt then they rate them lower.  Thus lenders will either not lend to them or lend to them at an increased rate due to the higher risk of non repayment.  That is not unfair in any way, shape or form.  It is entirely fair, a good independent check and balance and is the essential transparency that the business world needs.

You don't need to tell me I don't understand, I knew that already. The working of the financial world is something I don't really care about, it's the politics I care about. I say it's not fair as it seems to do nothing to help smaller business' grow. It only really helps the bigger companies grow bigger, as a good rating suggests more investors for that company as you say.