Understanding Credit Ratings: From AAA to D
Investment Grade Ratings
| Moody’s | S&P | Fitch | Description |
|---|---|---|---|
| Aaa | AAA | AAA | Very high ability to pay principal and interest. Maximum grade. Risk factors exist. |
| Aa1 | AA+ | AA+ | Added ability to pay principal and interest. Moderate risk, low.* |
| Aa2 | AA | AA | Differs little from its obligations with higher ratings. The issuer’s ability to meet its financial commitments related to the obligation is very strong. |
| Aa3 | AA- | AA- | Similar to Aa2, with slightly higher risk. |
| A1 | A+ | A+ | Good ability to pay principal and interest. Moderately high risk.* |
| A2 | A | A | It is a little more susceptible to adverse economic conditions and cyclical changes than obligations in categories with higher scores. However, the issuer’s ability to meet its financial commitments related to the obligation is still strong. |
| A3 | A- | A- | Similar to A2, with slightly higher risk. |
| Baa1 | BBB+ | BBB+ | Sufficient capacity to pay principal and interest. Average score, higher. High stakes, likely to weaken due to changes in the economy, sector, or issuer.* |
| Baa2 | BBB | BBB | An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or cyclical changes are likely to lead to a reduction in the issuer’s ability to meet its financial commitments related to the obligation. |
| Baa3 | BBB- | BBB- | Similar to Baa2, with slightly higher risk. |
Below Investment Grade (Speculative Grade) Ratings
| Moody’s | S&P | Fitch | Description |
|---|---|---|---|
| Ba1 | BB+ | BB+ | Variable capacity to pay. Average score. High risk, the company may be delayed in the payment of interest and principal.* |
| Ba2 | BB | BB | An obligation rated BB is less vulnerable to nonpayment than other emissions. However, it faces major uncertainties or exposure to adverse business, financial, or economic conditions that may lead the issuer to default on their obligations.** |
| Ba3 | BB- | BB- | Similar to Ba2, with slightly higher risk. |
| B1 | B+ | B+ | Minimum capacity to pay. Average score. High risk, the company may not be able to cancel the payment of interest and principal.* |
| B2 | B | B | An obligation rated as B is more vulnerable to nonpayment than one rated BB, but the issuer currently has the capacity to meet its obligations. Adverse business, financial, or economic conditions are likely to impair the ability or willingness to pay by the issuer.** |
| B3 | B- | B- | Similar to B2, with slightly higher risk. |
| Caa1 | CCC+ | CCC+ | High risk of default. |
| Caa2 | CCC | CCC | The grade CCC may be used to identify a situation where a bankruptcy petition has been filed, but payment of the obligation continues to be made.** |
| Caa3 | CCC- | CCC- | Similar to Caa2, with slightly higher risk. |
Notes:
* Ratings from AA to CCC may be modified by the addition of a + or – to show a relative situation with respect to the major categories.
** Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the lowest speculative grade, while C represents the highest.
Summary of Credit Rating Categories
- AAA – Highest capacity to pay
- AA – High capacity to pay
- A – Good ability to pay
- BBB – Average ability to pay (investment grade)
- BB – Speculative investment, low risk
- B – Speculative investment, high risk
- CCC – High risk of nonpayment, good potential for recovery
- C – High risk of nonpayment, low potential for recovery
- D – No possibility of payment or recovery potential
- E – Not classified due to lack of information or insufficient collateral
Adding a (+) to a rating indicates lower risk, while adding a (-) indicates a greater risk of default.