Credit Ratings
Various credit rating agencies (which are required to register with the SEC) analyze and rate the creditworthiness of corporate bond issuers. A higher credit rating means a lower risk of default, which generally translates to a lower interest rate that the issuer must pay to entice bond purchasers. The bonds of issuers with acceptable or better credit ratings are considered investment grade.
The three main credit rating agencies are Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch). Nationally recognized rating agencies are required to register with the SEC.
These agencies rank investment grade corporate bonds as follows:
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Investment Grade |
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|
Moody’s |
S&P |
Fitch |
Investment Grade / |
|
Aaa |
AAA |
AAA |
Highest quality, minimum credit risk |
|
Aa1 |
AA+ |
AA+ |
|
|
Aa2 |
AA |
AA |
High quality, low credit risk |
|
Aa3 |
AA- |
AA- |
|
|
A1 |
A+ |
A+ |
|
|
A2 |
A |
A |
Upper medium |
|
A3 |
A- |
A- |
|
|
Baa1 |
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