Credit Analysis

You run a public company. Because you want to buy out a competitor, you go to the debt markets and issue bonds so that you can raise money for the merger.

The bonds will require a credit rating from the big credit agencies. At that point, the credit agencies will engage in a process known as credit analysis to determine the safety of the bonds, the likelihood of repayment, and the other qualities that let the market know if this is a sound, safe debt instrument...or one that faces a high likelihood of default (like a junk bond.)

This process consists of analyzing cash flow, market trends, financial projections, and a variety of financial ratios that help determine the security of this debt.