How to Choose a Credit Rating Agency

Choosing a rating agency is less about finding the 'best' agency in the abstract and more about finding the best fit for a specific company's sector, target lender and investor base, and practical service expectations.

Start With Who Will Actually Use the Rating

The most important starting question is rarely about the agencies themselves, but about the company's own funding plans: which specific lenders, bond investors, or other stakeholders does the company intend to approach with this rating, and which agencies' ratings carry the most established weight and recognition with that specific audience. A rating that is highly credible in the abstract but carries less familiarity with the company's actual target lenders provides less practical value than one from an agency those specific lenders already know and trust.

Assess Sector-Specific Expertise Directly

Beyond general reputation, companies benefit from directly assessing how much genuine, demonstrated experience a given agency has in their specific sector — not just broad industry categories, but the specific sub-segment the company operates in. An agency with a large, actively rated portfolio of comparable companies in the same specific niche is likely to bring more nuanced, calibrated judgement to the assessment than one rating its first company in that particular space, even if the agency is highly reputable overall.

Understand the Fee Structure and Total Multi-Year Cost

Because a rating relationship typically continues for the full life of the rated instrument, through annual surveillance reviews as discussed extensively elsewhere in this content series, the total cost of the relationship extends well beyond the initial rating fee. Companies should ask specifically about the ongoing annual surveillance fee structure, not just the first-year cost, and understand how fees might change if the rated amount or instrument changes over time.

Evaluate the Practical Working Relationship

•      Typical timeline for a first-time assignment, and what drives variation around that typical range

•      Which specific analyst or team is likely to be assigned, and their relevant sector background

•      Communication style and responsiveness during the proposal and mandate discussion stage, which is often a reasonable early indicator of what the ongoing relationship will be like

•      How the agency handles requests for clarification or factual correction before a rating is finalised for publication

Consider Whether a Single Agency or Multiple Agencies Is the Right Approach

As covered in more depth in the dedicated article on changing agencies elsewhere in this pillar, some companies — particularly larger ones, or those with multiple distinct instruments or funding sources — choose to engage more than one agency, either for different instruments or, in some cases, to obtain more than one rating on the same instrument for broader market credibility. This decision involves weighing the additional cost and management time against the potential benefit of broader market recognition and, in some cases, a useful cross-check between two independent analytical views.

A Practical Decision Framework

•      Step 1: Identify the specific lenders or investors the rating needs to be credible with, and ask them directly which agencies they are most familiar with

•      Step 2: Shortlist two to three agencies with demonstrated, specific expertise in the company's sector

•      Step 3: Request a detailed fee proposal covering both the initial rating and the full multi-year surveillance cost

•      Step 4: Assess the practical working relationship through the proposal and mandate discussion process itself

•      Step 5: Make a decision, while keeping in mind that changing agencies later, while possible, involves its own considerations covered elsewhere in this pillar

Illustrative Example

A hypothetical mid-sized renewable energy developer, planning to raise both bank term debt and, eventually, project bonds, engages in a structured selection process before mandating a rating agency. It speaks with its two existing relationship banks, both of which indicate strong familiarity and comfort with two of the four large diversified agencies in particular for infrastructure and renewable energy ratings. It then requests detailed methodology documents and fee proposals from both, ultimately selecting the agency with a demonstrably larger existing portfolio of rated renewable energy assets, on the basis that this sector-specific depth is likely to translate into a more informed, nuanced assessment of its own specific project risk profile — a decision process that prioritised concrete, verifiable factors over general reputation alone.

Talk to FinMen Advisors — for help preparing for a rating exercise, write to marketing@finmen.in or call +91 77387 14680.

Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.