Ready for another ratings source? Morningstar enters credit ratings world.

This week on the podcast, FactSet sits down with Michael Hodel, Associate Director at Morningstar. Michael recently had a leading hand in developing the Morningstar credit rating system.  Morningstar credit ratings and company research is available on FactSet.

Please read below for a show notes, and listen to the full mp3. To subscribe to FactSet's podcast, please visit www.factset.com/podcast.

1:25 - Morningstar saw how equity research could be leveraged, along with balance sheet information, to provide credit ratings.

2:30 - One of the focal points of the credit ratings in the Morningstar methodology is the evaluation of a company's competitive advantage.

3:15-3:45 - One distinction between the Morningstar ratings system and the S&P or Moody's ratings systems is the usge of a five-year cashflow forecast. 

4:00 - On both the equity and debt sides ratings will be updated at least on a quarterly basis.

4:50-6:00 - Along with credit ratings, Morningstar is striving to develop advanced credit research to supplement the ratings. Over the next months Morningstar plans to develop company research from a creditor's perspective.

8:15-8:45 - One interesting example from Morningstar's ratings is the distinction between HP and Dell. While HP has more debt than capital and Dell has a higher amount of cash on hand, Morningstar rates HP higher due to a lack of confidence in Dell's recent acquisitions. Essentially, Dell may spend its excess cash.

9:10 - Ratings serve as a starting point for a discussion about a company.

10:40 - Clients may wonder why Morningstar is entering the ratings space now. Currently, Morningstar provides independent ratings with no relationship to the issuers being rated. The ratings system is also transparent, including full availability of the credit research models (for clients). Both factors are important given the current climate.