A — S&P / Fitch
A2 — Moody’s
Such ratings are given to bond issues and insurance companies, primarily, and this particular one is in the Upper Medium band of the Investment Grade ratings.
Investment grade bonds are considered to have a very low possibility of default. The ratings go up to AAA/Aaa and all the way down to DDD/D, with Investment Grade bonds being in the range of AAA/Aaa to BBB-/Baa3.
The A/A2 rating is considered Upper Medium Investment Grade.
The reason there are two ratings separated by a slash is that the major ratings institutions have different systems for their rankings, but these signify the same amount of risk. The companies that do the majority of the credit ratings on bonds and large companies are Fitch, Moody’s, and Standard & Poor’s (S&P).
Some have accused these institutions of pocketing large fees for performing the ratings while not actually protecting investors from the risks, since several large companies have held superior ratings up until the day they declared bankruptcy. On the other hand, these bankruptcies tended to be big surprises to everyone.
These ratings will determine how much of a yield a company will be expected to pay on a bond issue to compensate investors for the amount of risk they are taking. Bonds with higher ratings can have a low yield because they are perceived as secure investments.
Junk Bonds are those with a rating below BBB-/Baa3, and they are also called High Yield bonds because a company must pay a higher risk premium to compensate investors for the risk they take on.
Bonds can be backed by collateral or surety insurance to raise their ratings. Insurance companies and other companies are also evaluated using their credit ratings.
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