How Credit Ratings Help to Diversify Corporate Funding Options

Published: June 10, 2025

What are the key benefits for corporate treasurers in securing a credit rating? Matt Palmer, Senior Director, Fitch Ratings, explains in the first of two back-to-basics ratings articles.

With regulation impacting the availability of bank capital as a funding source for companies, treasurers are increasingly diversifying their funding sources by turning to the capital markets. Global corporate bond debt surged to USD $35tr. by the end of 2024, with more than 60% of the increase since 2008 coming from non-financial corporations – underscoring the sheer size and increasingly key role the market plays in companies’ financing goals.

For many of these companies, a credit rating is seen as essential. Think of a credit rating as a financial report card for companies – it signals to investors how a company is independently regarded as to whether it can pay back its debts on time. Ratings are assigned by agencies such as Fitch Ratings based on published criteria developed to capture assumptions and expectations based on foreseeable events and their effects on factors such as business profile, cash flows, financial leverage, reserves, or access to capital. This unbiased and forward-looking opinion provides extra transparency, as well as comparability with similarly rated companies around the world, to a range of investors, counterparties, and other market participants.

While investors use credit ratings as an input to help make informed investment decisions and manage their portfolios, ratings can also play a number of important roles. Businesses and FIs use credit ratings to help assess the risk of dealing with other firms and organisations. For instance, when a bank considers lending money to a company, it looks at the credit rating as part of its evaluation of the risks involved. Investment bankers also use such ratings as input in helping to set the initial pricing of debt issues and understand the associated risks.

Below, we detail the main benefits of a credit rating for corporate treasuries entering the capital markets:

• Access to capital markets: by providing transparency, comparability, and an independent opinion, credit ratings can make it easier for companies to tell their story to the capital markets and raise money by issuing bonds directly to investors, rather than taking loans from banks. This broader access to capital markets can be crucial for funding capital expenditure or acquisitions.
• Lower borrowing costs: a credit rating can help reduce the interest rates a company pays on its debt, leading to lower borrowing costs. On average, a rated corporate could save up to 70 basis points in accessing the euro public bond market versus an equivalent unrated peer. Companies with higher credit ratings also generally find it easier to access international capital markets and attract a larger pool of investors when they do so.
• Supports risk management: credit ratings provide an independent assessment of a company’s financial health, providing a commonly understood benchmark for internal evaluations and strategic planning, helping to support the business in managing its risks effectively.
• Basel: we believe many banks will value an investment-grade credit rating more highly in the coming years as Basel rules are implemented on a phased basis. The final Basel III Standard restricts the use of Internal Ratings-Based (IRB) bank credit models when assigning prudential risk weights for credit and counterparty risk exposures (e.g. credit facilities, loans, or derivatives). In most applicable jurisdictions, the revised Standardised Approach (SA) places greater emphasis on using external credit ratings and will see many banks focus on their corporate clients being rated where there is an expectation of achieving an investment-grade rating.
• Regulatory compliance: in some industries such as financial services, having a credit rating is often a regulatory requirement. It helps ensure that the company meets corporate governance standards and maintains transparency, which can be crucial for participating in specific contracts or markets.
• Enhanced credibility: a higher credit rating can help boost a company’s reputation, providing a competitive edge in negotiations with suppliers, customers, and partners. It can signal financial stability and health, making the company more attractive to a diverse range of counterparties, such as suppliers and landlords, not just credit investors. This can also help improve working capital metrics.
• Information flow: a s capital markets expand and the range of issuers increases, traditional market sources of information are arguably becoming more stretched in their ability to cover any given issuer. Credit ratings help improve transparency and boost a company’s market profile with regular in-depth analysis on a forward-looking basis. This transparency is beneficial for investors, helping them to make more informed decisions.

Obtaining a credit rating offers numerous benefits for companies, from helping to access lower borrowing costs to enhancing credibility and access to capital markets. Credit ratings also assist companies to manage financial risks, comply with regulations, and build trust with stakeholders. When choosing a rating agency, factors including the quality of research, global reach, and overall service level should be considered. Fitch Ratings, for example, offers detailed information on navigating the rating process, making it easier for companies to understand the process and benefit from obtaining their own assessment.

In short, a credit rating can not only open doors to new financing opportunities, but it can also support a company’s position in the global capital markets.

In the second and final part of this ratings back-to-basics mini-series, Matt Palmer looks at the drivers behind securing a second rating.