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In order to arrive at a rating, one crucial assumption is made: credit worthiness is a stable concept. This means that historical data may be used to transform the information obtained from a company into estimates for default probability and loss severity. Since fundamentals change gradually over time, multinotch rating changes are unlikely. Rating agencies therefore use Outlooks and Watch Lists as leading indicators for potential rating changes. They signal in which direction the next rating step will probably occur. If, for example, a negative outlook is assigned, the rating agency usually defines certain criteria that have to be met by the issuer over a certain period of time, otherwise a rating downgrade can be expected. An example would be that a company must achieve positive free cash flows within a predetermined time-horizon. The failure to do so will result in the loss of the current rating.