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.
|A1||A+||A-1||A+||F1||Upper medium grade|
|Baa1||BBB+||BBB+||Lower medium grade|
|Ba1||Not prime||BB+||B||BB+||B||Non-investment grade
AKA high-yield bonds
AKA junk bonds
|Caa3||CCC−||Default imminent with little
prospect for recovery
Many institutional investors are not allowed to own non-investment grade bonds.