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3. Credit Ratings

d. distinguish between corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of “notching”;

## e. explain risks in relying on ratings from credit rating agencies;

What is “notching”? A credit rating agency’s notching policy primarily intends to reflect the relative recovery prospects of different instruments issued by the same issuer. A rating agency may notch up secure debt from the company credit rating and notch down subordinated debt.