fixed income: reading 58, page 480,question 43

fixed income: reading 58, page 480,question 43 why when only internal credit enhancements are being used, then the issuer’s credit rating is not relevant? Thanks. if use third party guarantee, then only third party credit rating is relevant is it? Thanks.

With the use of a third party guarantee, the credit risk is increased because this third party will recover any losses experienced by the issuer…The ‘weak link’ philosophy applies here though as the credit rating can only be as good as the third party’s credit rating…Essentially the third party helps reduce the loss of the issuer incase is needed (this is an external credit enhancement though) Internal credit enhancement’s DON’T rely on third party guarantees therefore the issuer’s credit risk is analyzed… Anyway, not quite sure exactly what you’re questions are… but I hope this helps

the statement is"I am concerned that the debt will not sell well in the market because Whisper Spa’s credit rating is marginal". the question 43: answer is: the statement is most likely not justified , because only internal credit enhancements are being used. I think Whisper Spa is the issuer, so its credit rating is relevent. But the answer said no. So i feel confused… MFIN— Wrote: ------------------------------------------------------- > With the use of a third party guarantee, the > credit risk is increased because this third party > will recover any losses experienced by the > issuer…The ‘weak link’ philosophy applies here > though as the credit rating can only be as good as > the third party’s credit rating…Essentially the > third party helps reduce the loss of the issuer > incase is needed (this is an external credit > enhancement though) > > Internal credit enhancement’s DON’T rely on third > party guarantees therefore the issuer’s credit > risk is analyzed… > > Anyway, not quite sure exactly what you’re > questions are… but I hope this helps