To help you evaluate the relative creditworthiness of these securities, ratings systems have been established. The two most recognized independent rating agencies are Moody's Investors Service and Standard & Poor's. The ratings can help you make informed decisions based on their professional evaluation of the credit quality of a security and the issuer's ability to make payments of interest and principal. Once a rating is assigned, it is periodically reviewed and may be raised or lowered, based on the issuer's merits. The better the issuer's ability to repay interest and principal (as indicated by its rating), the lower the amount of interest you will generally receive. Conversely, an issue with a lower credit rating will pay a higher rate of interest to compensate for the additional risk.
| Bond Grades and Qualities |
| |
Moody's |
S&P |
Description |
Investment
Grade |
Aaa |
AAA |
Investment Grade, highest quality; best asset protection and strongest capacity to pay interest and repay principal |
| Aa |
AA |
Investment Grade, upper-medium quality; good asset protection and very strong capacity to pay interest and repay principal |
| A |
A |
Investment Grade, upper-medium quality; solid asset protection and capacity to pay interest and repay principal |
| Baa |
BBB |
Investment Grade, medium quality; adequate asset protection and capacity to pay interest and repay principal |
| Speculative |
Ba |
BB |
Speculative; modest asset protection and less-than-adequate capacity to make payments; lowest degree of speculation with respect to capacity to pay interest and repay principal |
| B |
B |
Speculative; greater vulnerability to default, but currently has the capacity to meet interest and principal payments |
| Caa |
CCC |
Very speculative; currently vulnerable to default; dependent on favorable conditions |
| Ca |
CC |
Extremely speculative |
| C |
C/C |
Highest degree of speculation - no interest is paid |
| |
D |
In payment default |
|
