What Do The Ratings Mean from the Rating Agencies?
Structured Finance/Long-Term Credit Ratings of Moody's, Standard & Poor's and Fitch
The three largest and best-known ratings agencies are Moody's Corporation (Moody's); Standard & Poor's (s&p), a division of The McGraw-Hill Companies; and Fitch Ratings (Fitch). These three use the following generic ratings:
Investment Grade Ratings
| Moody's | S & P | Fitch |
| Aaa | AAA | AAA |
| Aaa | AA | AA |
| A | A | A |
| Baa | BBB | BBB |
Speculative Grade Ratings
| Moody's | S & P | Fitch |
| Ba | BB | BB |
| B | B | B |
| Caa | CCC | CCC |
| Ca | CC | CC |
| C | C | C |
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Moody's
| Ratings | Meanings |
| Aaa | Obligations rated 'Aaa' are judged to be of the highest quality, with minimal risk. |
| Aa | Obligations rated 'Aa' are judged to be of high quality and are subject to very low credit risk. |
| A | Obligations rated 'A' are considered upper-medium grade and are subject to low credit risk. |
| Baa | Obligations rated 'Baa' are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. |
| Ba | Obligations rated 'Ba' are judged to have speculative elements and are subject to substantial credit risk. |
| B | Obligations rated 'B' are considered speculative and are subject to high credit risk. |
| Caa | Obligations rated 'Caa' are judged to be of poor standing and are subject to very high credit risk. |
| Ca | Obligations rated 'Ca' are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. |
| C | Obligations rated 'C' are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest. |
Lowest Investment Grade Rating: Baa
Modifiers: Moody's appends numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
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S & P
| Ratings | Meanings |
| AAA | An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. |
| AA | An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. |
| A | An obligation rated 'A' is somewhat more susceptible to the adverse affects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. |
| BBB | An obligation rated 'BBB' 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. |
The following ratings are regarded as having significant speculative characteristics:
| Ratings | Meanings |
| BB | An obligation rated 'BB' 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 obligor's inadequate capacity to meet its financial commitment on the obligation. |
| B | An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', 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 obligor's capacity or willingness to meet its financial commitment on the obligation. |
| CCC | An obligation rated 'CCC' 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 'CC' is currently highly vulnerable to nonpayment. |
| C | A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. |
| D | An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the due date even if the applicable grace period has not expired, unless Standard & Poor's believes such payments will be made during such grace period. The 'D' 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. |
| NR | This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy. |
Lowest Investment Grade Rating: BBB
Modifiers: The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
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Fitch
Investment Grade
| Ratings | Meanings |
| AAA | Highest credit quality. 'AAA' ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. |
| AA | Very high credit quality. 'AA' ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. |
| A | High credit quality. 'A' ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. |
| BBB | Good credit quality. 'BBB' ratings indicate that there are currently expectations of low credit risk. The capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. This is the lowest investment grade category. |
Speculative Grade
| Ratings | Meanings |
| BB | Speculative. 'BB' ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. |
| B | Highly speculative. For issuers and performing obligations, 'B' ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. |
| CCC | For issuers and performing obligations, default is a real possibility. Capacity for meeting financial commitments is solely reliant up on sustained, favorable business or economic conditions. |
| CC | For issuers and performing obligations, default of some kind appears probable. |
| C | For issuers and performing obligations, default is imminent. |
| RD | Indicates an entity that has failed to make due payments (within the applicable grace period) on some but not all material financial obligations, but continues to honor other classes of obligations. |
| D | Indicates an entity or sovereign that has defaulted on all of its financial obligations. |
Lowest Investment Grade Rating: BBB
Modifiers: The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the 'AAA' Long-term rating category or to categories below 'CCC'.
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