Credit Rating Scale
The creditworthiness of organizations and financial instruments is evaluated by credit rating companies using a uniform scale. Although particular scales could differ somewhat throughout agencies, they usually have a similar structure. A typical credit rating scale is as follows:
1. Investment Grade Rating
- AAA: Highest quality, indicating exceptional creditworthiness with minimal risk of default.
- AA: Very high quality, with a strong capacity to meet financial commitments but slightly more susceptible to adverse economic conditions.
- A: High quality, with a strong capacity to meet financial commitments but more susceptible to changes in economic conditions.
2. Speculative Grade Ratings
- BBB: Medium quality, indicating adequate creditworthiness but with some degree of vulnerability to adverse economic conditions.
- BB: Speculative, indicating an elevated level of credit risk and a greater possibility of default.
- B: Highly speculative, with a significant risk of default in adverse economic conditions.
- CCC: Substantial credit risk, with a high likelihood of default.
- CC: Very high credit risk, with imminent risk of default.
- C: Lowest rated, indicating that the issuer is currently in default or has a high probability of default.
- D: Default, indicating that the issuer has already defaulted on its debt obligations.