What is ‘Notching’
Notching is the practice by rating agencies to give different credit ratings to obligations of a single entity or closely related entities. Rating distinctions among obligations are made based on differences on their security or priority of claim. With varying degrees of losses in the event of default, obligations are subject to being notched higher or lower.
BREAKING DOWN ‘Notching’
Moody’s Investors Service (“Moody’s) and Standard & Poor’s Financial Services (“S&P”) are two major credit rating agencies that notch up or notch down instruments within the same corporate family depending on placement in an obligor’s capital structure and their level of collateral. The base from which an instrument is notched…