Standard & Poor's Ratings Group has assigned counterparty ratings to 400 financial institutions.
The new counterparty rating, according to Cliff Griep, S&P's executive managing director for financial institutions, provides participants in the OTC derivatives market a means of determining the overall creditworthiness of a financial institution, even if that institution does not itself issue debt.
"Counterparty ratings are distinct from debt ratings because they speak to a company's overall creditworthiness, not just its willingness to repay debt," Mr. Griep said at a briefing for reporters.
The counterparty ratings differ from traditional debt ratings in that they solely reflect credit factors relating to a company's performance.
The ratings cover banks, thrifts, asset managers, finance companies, credit unions, federal Home Loan banks, derivative products companies, and investment banks.
S&P said the counterparty ratings generally are the same as the institution's senior debt or certificate of deposit rating. But in non-investment-grade categories, the CD rating of the institution can be higher than its senior debt and counterparty rating.
The rating agency also said that if the senior debt rating is linked to specific collateral support of guarantees from parent or related companies, the counterparty and senior debt ratings can differ as well.
"We have broadened our capabilities to rate entities that are participating in credit-sensitive markets," said Mr. Griep. "The growth of the ratings business is tied to the development of risk-sensitive transaction markets like derivatives."
According to Marilyn Prout, S&P's director of financial institutions, the new counterparty ratings were necessary to help companies that enter contracts with institutions that don't have senior debt ratings..
"A lot of derivatives business is being done with subsidiaries of rated companies," Ms. Prout said. "There is definitely a need there for counterparty ratings."