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Credit Rating

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.

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