Curious as to what a ʻAAAʼ or ʻBBʼ rating on a bond actually means? View detailed descriptions of what constitutes each of S&P's ratings below.
Long-Term Issue Credit RatingsIssue credit ratings are based, in varying degrees, on the following considerations:
- Likelihood of payment—capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
- Nature of and provisions of the obligation;
- Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditorsʼ rights.
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA
An obligation rated ʻAAAʼ has the highest rating assigned by Standard & Poorʼs. The obligorʼs capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated ʻAAʼ differs from the highest-rated obligations only to a small degree. The obligorʼs capacity to meet its financial commitment on the obligation is very strong.
A
An obligation rated ʻAʼ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higherrated categories. However, the obligorʼs capacity to meet its financial commitment on the obligation is still strong.
BBB
An obligation rated ʻBBBʼ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB
An obligation rated ʻBBʼ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligorʼs inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated ʻBʼ is more vulnerable to nonpayment than obligations rated ʻBBʼ, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligorʼs capacity or willingness to meet its financial commitment on the obligation.
CCC
An obligation rated ʻCCCʼ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated ʻCCʼ is currently highly vulnerable to nonpayment.
C
A ʻCʼ rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the ʻCʼ rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrumentʼs terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
(Obligations rated ʻBBʼ, ʻBʼ, ʻCCCʼ, ʻCCʼ, and ʻCʼ are regarded as having significant speculative characteristics. ʻBBʼ indicates the least degree of speculation and ʻCʼ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.)
D
An obligation rated ʻDʼ is in payment default. The ʻDʼ rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poorʼs believes that such payments will be made during such grace period. The ʻDʼ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligationʼs rating is lowered to ʻDʼ upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
Plus (+) or minus (-)
The ratings from ʻAAʼ to ʻCCCʼ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
NR
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poorʼs does not rate a particular obligation as a matter of policy.
Short-Term Issue Credit Ratings
A-1
A short-term obligation rated ʻA-1′ is rated in the highest category by Standard & Poorʼs. The obligorʼs capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligorʼs capacity to meet its financial commitment on these obligations is extremely strong.
A-2
A short-term obligation rated ʻA-2′ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligorʼs capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated ʻA-3′ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B
A short-term obligation rated ʻBʼ is regarded as having significant speculative characteristics. Ratings of ʻB-1′, ʻB-2′, and ʻB-3′ may be assigned to indicate finer distinctions within the ʻBʼ category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligorʼs inadequate capacity to meet its financial commitment on the obligation.
B-1.
A short-term obligation rated ʻB-1′ is regarded as having significant speculative characteristics, but the obligor has a relatively stronger capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-2.
A short-term obligation rated ʻB-2′ is regarded as having significant speculative characteristics, and the obligor has an average speculative-grade capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-3.
A short-term obligation rated ʻB-3′ is regarded as having significant speculative characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
C
A short-term obligation rated ʻCʼ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D
A short-term obligation rated ʻDʼ is in payment default. The ʻDʼ rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poorʼs believes that such payments will be made during such grace period. The ʻDʼ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Dual Ratings
Standard & Poorʼs assigns “dual” ratings to all debt issues that have a put option or demand feature as part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term rating symbols are used for bonds to denote the long-term maturity and the short-term rating symbols for the put option (for example, ʻAAA/A-1+ʼ). With U.S. municipal short-term demand debt, note rating symbols are used with the short-term issue credit rating symbols (for example, ʻSP-1+/A-1+ʼ).