Credit Rating refers to a judgement on how risky a debt is -or in other words how likely it is that the borrower will pay back the debt and pay the interest on time. Credit ratings are issued by ratings agencies such as Moodys, Standard & Poors and Fitch. There are small differences in the ratings that they give, as follows.
Moodys rates bonds from Aaa to C. Standard & Poors’ ratings mirror Moodys with ratings running from AAA to D.
| Moody’s | S&P | Fitch | Rating description | ||||
|---|---|---|---|---|---|---|---|
| Long-term | Short-term | Long-term | Short-term | Long-term | Short-term | ||
| Aaa | P-1 | AAA | A-1+ | AAA | F1+ | Prime | Investment-grade |
| Aa1 | AA+ | AA+ | High grade | ||||
| Aa2 | AA | AA | |||||
| Aa3 | AA− | AA− | |||||
| A1 | A+ | A-1 | A+ | F1 | Upper medium grade | ||
| A2 | A | A | |||||
| A3 | P-2 | A− | A-2 | A− | F2 | ||
| Baa1 | BBB+ | BBB+ | Lower medium grade | ||||
| Baa2 | P-3 | BBB | A-3 | BBB | F3 | ||
| Baa3 | BBB− | BBB− | |||||
| Ba1 | Not prime | BB+ | B | BB+ | B | Non-investment grade speculative |
Non-investment grade AKA high-yield bonds AKA junk bonds |
| Ba2 | BB | BB | |||||
| Ba3 | BB− | BB− | |||||
| B1 | B+ | B+ | Highly speculative | ||||
| B2 | B | B | |||||
| B3 | B− | B− | |||||
| Caa1 | CCC+ | C | CCC | C | Substantial risks | ||
| Caa2 | CCC | Extremely speculative | |||||
| Caa3 | CCC− | Default imminent with little prospect for recovery |
|||||
| Ca | CC | ||||||
| C | |||||||
| C | D | / | DDD | / | In default | ||
| / | DD | ||||||
| D | |||||||
Many institutional investors are not allowed to own non-investment grade bonds.