Robustness of Credit Rating Outlooks under Data Scarcity Conditions

Credit ratings are a fundamental basis for assessing the credit quality of an issuer or issue over a one to one-and-a-half-year horizon. It is assumed that during this period, the creditworthiness of the rated object should not change significantly; otherwise, the direction of possible changes will be indicated by the rating outlook. Being an extension of a credit rating, outlooks have not been in the main research focus of various articles devoted to credit ratings. This paper analyzes the stability of credit ratings after assignment of different types of outlooks or placement under review status using rating actions data of four Russian rating agencies between 2016 and 2026. It was found that rating outlooks are no less important than the credit rating itself. Specifically, with a negative forecast, approximately 39% of credit ratings decline within a year-and-a-half horizon. A strong and robust link has been identified between a negative forecast and default rates: almost 9% of issuers default within a year following the assignment of a negative forecast, which is comparable to the default rate for ratings ranging from BB− to B on the national scale for the Russian Federation. When comparing these results with the stability of credit ratings divided into “more creditworthy” and “less creditworthy” groups according to the Central Bank of Russia’s approach, it can be concluded that forecasts (especially positive, negative, and “rating underreview”) imply a more probable movement of the rating compared to its level directly.