Portugal: Sovereign credit ratings

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Definition: S&P includes long-term ratings from the highest AAA to the lowest D rating. Moody’s includes long-term ratings from the highest Aaa to the lowest C. Fitch includes long-term ratings from the highest AAA to the lowest D rating. Scope includes long-term foreign-currency ratings from the highest AAA to the lowest D rating.

For all four international credit rating agencies, ratings are divided into two main groups based on the level of credit risk: investment grade for lower levels of credit risk and speculative grade for higher levels of credit risk. For S&P, Fitch and Scope, investment grade issues/issuers are those rated from BBB- and above, while those from BB+ and below are categorized as speculative grade. Moody’s denotes as investment grade issues/issuers as those rated from Baa3 and above, while ratings from Ba1 and below fall into the category of speculative grade.

All four agencies include modifiers into their generic alphabet-based ratings for particular ranges. Ratings from S&P, Fitch and Scope are modified with “+” or “-” from the range AA to CCC. Moody’s appends numerical modifiers from 1 to 3 to the generic rating classifications from Aa to Caa. 1 indicates standing in the higher end of the generic category, while 3 indicates ranking in the lower end. All modifiers denote relative status within major ratings categories.

Rating Outlooks indicate the direction the rating is likely to move over a one- to two-year period. In determining an outlook, consideration is given to any changes in fundamental business conditions. Credit Watch focuses on identifiable events that cause ratings to be placed under special surveillance.

Rating Outlooks/Watches for the four agencies are the following:

- Positive means that a rating may be raised
- Negative means that a rating may be lowered
- Stable means a rating is not likely to change
- When the fundamental trend has strong, conflicting elements of both positive and negative, the Outlook/Watch can be denoted as Developing (for Scope, a Stable Outlook would be assigned in this case).

Credit Watches do not include a Stable Watch because they are only event driven and denote higher probability of change in the rating. Credit Outlooks and Watches are mutually exclusive.