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Morningstar® Corporate Credit Research
Objective corporate debt ratings and research.
Overview
For Portfolio Managers and Institutional Investors
For Financial Advisors
Credit Rating Methodology
Accessible in Morningstar Products
Credit Rating Methodology
Morningstar has created a transparent framework for our credit ratings built from four quantitative and qualitative metrics—Business Risk, Morningstar® Cash Flow Cushion™, Morningstar® Solvency Score™, and Distance to Default. The first two are qualitative and depend on the analyst’s business forecast. The latter two are primarily quantitative. While the Solvency Score is based on a company’s financial ratios, Distance to Default is a market-driven measure of financial health and distress. All of these metrics add up to the Morningstar® Corporate Credit Rating™.
Morningstar Corporate Credit Rating Process
Competitive Analysis
Morningstar analysts research a company and its industry, including management and customer interviews, conference calls, and trade show visits. The result of this analysis is the Morningstar® Economic Moat™ Rating. Developed by our equity research team, this metric indicates how a company compares to its competitors by giving it a wide, narrow, or no moat.
Cash Flow Forecasts
Our credit analysts consider financial statements and competitive dynamics to forecast the company’s future free cash flows. Their analysis filters down into an estimate of the Morningstar Cash Flow Cushion. This proprietary ratio measures how many times a company’s cash will cover its debt-like contractual commitments over the next five years.
Scenario Analysis
Our credit analysts run bull and bear cases to determine alternate estimates of enterprise value. Based on competitive analysis, cash flow forecasts, and scenario analysis, the analyst assigns a Business Risk level. This metric identifies the uncertainty of a company’s business operations and its cash flow.
Quantitative Checks
Morningstar credit analysts apply quantitative tools built on our research and backtesting processes to rate a company’s health using two metrics. The Morningstar Solvency Score comes from historical and forecasted financial ratios of liquidity, profitability, capital structure, and interest coverage. The second metric, Distance to Default, measures a company’s current financial health by estimating the likelihood that a company’s assets will fall below the value of its liabilities.
Rating Committee
In a Credit Rating Committee meeting, the analyst’s credit rating recommendation undergoes rigorous scrutiny. Senior personnel question the analyst directly about his or her model assumptions and company assessment, then a group discussion follows. We only publish the credit rating when the members of the committee reach a consensus in an official vote. Our ratings use the standard scale of “AAA” for extremely low default risk to “D” indicating a payment default.
Specialized Models
In addition to our standard models, we’ve developed specialized models to account for the differences in financial companies. We currently have specialized models in place for rating banks, insurance companies, and REITs.

More about our bank credit ratings  
More about our insurance credit ratings  
More about our REIT credit ratings  
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