What is typically evaluated by rating agencies when assessing bonds?

When rating agencies assess bonds, they focus primarily on the creditworthiness of the issuer. This evaluation involves analyzing the issuer's ability to make timely payments of interest and principal on the bond. Factors such as the issuer's financial health, revenue-generating capacity, debt levels, and overall economic conditions contribute to the assessment of creditworthiness.

A ratings agency will look at historical financial performance, such as cash flow statements, balance sheets, and income statements, to determine the likelihood that the issuer can meet its obligations. The outcome of this assessment will ultimately affect the bond's rating, which informs investors about the risk associated with the bond.

While future cash flows and regulatory compliance are important considerations, they play a supportive role in the overall analysis of the issuer's credit quality rather than being the central focus. The relationship with financial institutions can also have implications for funding and financial stability but is not the primary factor in bond ratings. Thus, the creditworthiness of the issuer stands as the most significant determinant in the bonding evaluation process.