Credit rating

An independent assessment of the creditworthiness of a borrower or bond (note or any security of indebtedness) issuer undertaken by a credit rating agency. It measures the probability of the timely repayment of principal and interest. Generally, a higher credit rating would lead to a more favourable effect on the marketability of a bond. The credit rating symbols (long-term) are generally assigned with "triple A" as the highest and "triple B" (or Baa) as the lowest in investment grade (See below for definition of rating grades). Anything below triple B is commonly known as a "junk bond."
The three best known credit rating institutions are Standard and Poor´s, Moody´s and Fitch. Each agency has a slightly different scale for rating, using A, B and C categories, with fine gradations of each, and different criteria are applied to assessment of national and international borrowings.. Bonds rated AAA (or Aaa) have the highest ratings assigned by rating agencies. They carry the smallest degree of investment risk. Issuer´s capacity to pay interest and principal is extremely strong. Bonds rated AA (or Aa)are judged to be of high quality by all standards. They differ from the highest rated (AAA) bonds only in a small degree. Issuer´s capacity to pay interest and principal is very strong. Bonds rated A have strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories.
Bonds rated (BBB or Baa) are considered medium grade obligations. They are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or unreliable over any length of time. These bonds lack outstanding important characteristics and have speculative characteristics as well. Securities with a rating of BBB and above are considered to be "investment grade", while those below are reckoned to be "speculative" and attract financing on inferior terms.