Unsolicited Rating

An unsolicited rating is a credit rating assigned by an agency without explicit request or payment from the issuer. The issuer has not provided financial information, held meetings with analysts, or approved the rating’s publication. Unsolicited ratings are legally permitted in most jurisdictions but are controversial: they may be more conservative than solicited ratings (because agencies face less issuer pressure to be generous), yet they can be inaccurate due to reliance on public information and inference rather than direct dialogue.

Why unsolicited ratings exist

Most credit ratings come from issuers. A company wants a rating because it improves market access: a BBB− rating allows it to tap the $10+ trillion investment-grade bond market, while BB+ narrows the audience to high-yield specialists. The issuer pays the rating agency for a formal investigation, meetings with management, site visits, and quarterly updates. This is the solicited model and dominates the market.

Unsolicited ratings arise when an agency rates a borrower despite no fee arrangement and no issuer request. Motivations vary. The agency may want to expand coverage (especially for sovereigns or large issuers with public prominence). It may respond to investor demand for a grade on an unrated issuer. Or it may be competitive: if two agencies rate a company and a third does not, the third may publish an unsolicited rating to remain relevant.

Most unsolicited ratings are issued on sovereigns and large public companies. A small private firm is rarely rated unsolicited because the public information is sparse and investors have little demand. But a major sovereign or multinational corporation might be rated unsolicited by a regional or smaller agency if the Big Three (S&P, Moody’s, Fitch) have not covered it, or to offer a contrarian perspective.

The information disadvantage

Without issuer cooperation, analysts rely on public filings (10-K forms, audited financial statements), press releases, market data, and inference. They cannot ask management about accounting judgments, off-balance-sheet liabilities, or strategic challenges. They cannot tour manufacturing plants or interview customers. The rating is thus built from a noisier, less granular picture.

This disadvantage can cut both ways. An unsolicited rater, lacking pressure from the issuer to be generous, may adopt a more conservative baseline. An issuer with hidden problems—weak corporate governance, aggressive accounting, undisclosed litigation—might receive a lower unsolicited rating than solicited, because the agency is not reassured by management conversation.

Conversely, an unsolicited rater might misread the balance sheet or miss a crucial covenant. Without quarterly calls and updates, the rating can become stale. A large facility closure, announced on an earnings call but missed by the unsolicited rater, could leave the grade misaligned for months.

Regulatory and market treatment

The Securities and Exchange Commission requires rating agencies to disclose whether a rating is solicited or unsolicited. This disclosure is made in the rating publication and must be searchable; investors can filter unsolicited ratings and decide whether to weight them equally.

Under Dodd-Frank and related post-2008 reforms, unsolicited ratings are treated more skeptically by regulators. Insurance regulators, pension fund overseers, and bank supervisors sometimes apply a haircut: a BB+ unsolicited is treated as slightly riskier than a BB+ solicited, or a fund may require two investment-grade solicited ratings to override a single investment-grade unsolicited. This de-facto discount discourages agencies from publishing unsolicited ratings on marginal credits where they might be misleading.

The issuer response

An issuer that receives an unsolicited rating—especially a low one—has limited options. It can request the agency withdraw the rating, though the agency is not obliged to do so. It can request a meeting and provide information, hoping for an upgrade. Or it can publicly dispute the rating, arguing the methodology is flawed or the information incomplete. Such disputes are rare (most issuers avoid antagonizing rating agencies) but occur when unsolicited ratings are particularly harsh or consequential.

A company that is unrated but suddenly assigned a BB+ unsolicited might see its credit spreads widen sharply in the secondary market, even if the company disputes the grade. Investors who previously held no opinion now have a third-party sanction for selling. The issuer’s cost of refinancing rises.

Some issuers respond by soliciting a rating from a competing agency, hoping to demonstrate (through formal due diligence) that they are better-credit than the unsolicited rater believed. A successful upgrade from the new agency can offset the unsolicited downside.

Conflicts and motivations

Critics argue that unsolicited ratings are sometimes motivated by competitive pressure rather than public interest. If Moody’s and S&P have already rated a company, Fitch may issue unsolicited to maintain market presence. If Fitch’s unsolicited is more generous than the other two (a tactic to win future business), it pollutes the market with conflicting signals.

Conversely, a small agency issuing unsolicited ratings on high-profile, politically sensitive sovereigns might gain brand credibility by taking a contrarian or more rigorous stance. Credit Suisse and similar Swiss agencies have built reputations partly on publicly asserting tough unsolicited views on emerging-market and European sovereigns.

The agency’s own financial incentives matter. A publicly traded agency (S&P is part of McGraw Hill) may face pressure to rate as many issuers as possible to grow its fee base. This can push it toward unsolicited coverage that is ultimately less profitable (no fees) but adds to the appearance of comprehensive coverage.

Accuracy and outcomes

Academic studies on unsolicited versus solicited ratings show mixed results. Some find unsolicited ratings are more conservative (lower grades), suggesting analysts are less swayed by issuer relationships. Others find no significant difference in accuracy or predictive power. A few find unsolicited ratings are worse predictors of actual defaults, supporting the hypothesis that lack of issuer information leads to errors.

The evidence is complicated by selection bias: issuers that choose to be rated are generally stronger than the unrated population, so comparison is confounded. A weak issuer might remain unrated (and be subject to unsolicited later) because it fears a low solicited rating, creating an illusion that unsolicited raters are tougher.

The broader ecosystem

Most credit markets now have deep coverage from multiple agencies, reducing unsolicited ratings’ practical impact. Yet they persist, especially for:

• Sovereigns: A non-rated country seeking international capital access may be assigned unsolicited ratings to satisfy investor due diligence.
• Regional banks and utilities: Issuers that prefer not to pay for ratings or have reputational concerns may be covered unsolicited by local agencies.
• Large private companies: A family-owned enterprise seeking loans might be rated unsolicited by credit risk vendors and smaller agencies.

Unsolicited ratings also serve as a competitive tool: if a major agency drops coverage of a client, a rival may immediately publish unsolicited to fill the void.

See also