Series 52: 5.4.1.1. Bond Rating Services

5.4.1.1. Bond Rating Services

Before a bond is issued, it is rated according to its creditworthiness. Private ratings services, such as Standard & Poor’s, Moody’s Investors Services, and Fitch Ratings, are hired by the issuing company to assess the financial strength of the company. Their evaluation of the company’s ability to pay a bond’s principal and interest in a timely fashion will determine the bond’s coupon rate. The higher the grade, the lower the coupon.

Bond ratings are expressed as letters ranging from AAA to C. A triple-A rating is the most desirable, representing an investment grade bond with a minimal credit risk. To be considered investment grade, a corporate bond must be rated a BBB- (or Moody’s Baa3) or better. BB+ (or Moody’s Ba1) or below is considered below-investment grade. Each of the services uses the same basic grading system, with some variations in style. Here is a sampler:

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