Rating scale, Financial Management

Assignment Help:

Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into various levels of credit viz., high investment grade, investment grade and speculative grade. The scale and corresponding definitions are as follows:

High Investment Grades

AAA Highest Safety

Debentures rated 'AAA' are judged to offer highest safety of timely payment of interest and principal. Though the circumstances providing this degree of safety are likely to change, such changes, as can be envisaged, are most unlikely to affect adversely the fundamentally strong position of such issues.

AA High Safety

Debentures rated 'AA' are judged to offer high safety of timely payment of interest and principal. They differ in safety from 'AAA' issues only marginally.

Investment Grades

A Adequate Safety

Debentures rated 'A' are judged to offer adequate safety of timely payment of interest and principal; however, changes in circumstances can adversely affect such issues more than those in the higher rated categories.

BBB Moderate Safety

Debentures rated 'BBB' are judged to offer moderate safety of timely payment of interest and principal for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and to repay principal.

Speculative Grades

BB Inadequate Safety

Debentures rated 'BB' are judged to carry inadequate safety of timely payment of interest and principal; while they are less susceptible to default than other speculative grade debentures in the immediate future, the uncertainties that the issuer faces could lead to inadequate capacity to make timely interest and principal payments.

B High Risk

Debentures rated 'B' are judged to have greater susceptibility to default; while currently interest and principal payments are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal.

C Substantial Risk

Debentures rated 'C' are judged to have factors present that make them vulnerable to default; timely payment of interest and principal is possible only if favorable circumstances continue.

D In Default

Debentures rated 'D' are in default and in arrears of interest or principal payments or are expected to default on maturity. Such debentures are extremely speculative and returns from these debentures may be realized only on reorganization or liquidation.


Related Discussions:- Rating scale

Documenting the accounting system, Documenting the accounting system Th...

Documenting the accounting system There are 3 methods generally used to document the clients system. Narrative notes: Written description of the system Advantages:- C

Rationale for mergers, Rationale for Mergers Many of the motives behind...

Rationale for Mergers Many of the motives behind mergers of firms are discussed hereunder: Growth Growth is the most general and important motive for mergers. Merging f

What was the second ground of criticism, What was the Second ground of crit...

What was the Second ground of criticism of traditional treatment Second ground of criticism of the traditional treatment was that focus was on financing problems of corporate e

Describe about self-employment tax, Q. Describe about Self-Employment Tax? ...

Q. Describe about Self-Employment Tax? Self-Employment Tax - Most individuals who are in business for themselves, like PARTNERS, SOLE PROPRIETORS or independent contractor ar

Traditional mortgages, In US, savings and loan associations con...

In US, savings and loan associations constitute the major originating group of the traditional loans. What types of properties can be mortgaged?

What is the meaning of statement- earn out arrangements, What is the meanin...

What is the meaning of statement- Earn out arrangements These arrangements take place during acquisition of another company. Parent company agrees to pay additional money if

What are the main flaws of the profit maximisation criterion, What are the ...

What are the main flaws of the profit maximisation criterion The main technical flaws of this criterion are i) ambiguity, ii) quality of benefits and iii) timing of be

Irregular variation in time series analysis, Irregular Variation As the...

Irregular Variation As the name suggests, the movement of the variable is random in nature without consistency and therefore, highly unpredictable. Since this type of irregular

Examine the difference between explicit and implicit cost, Examine the diff...

Examine the difference between Explicit Cost and Implicit Cost Cost of capital can be either implicit cost or explicit. Explicit cost of any source of capital is the discount r

Time Value of Money, Two years ago, Randburg Ltd needed to accumulate a tot...

Two years ago, Randburg Ltd needed to accumulate a total of R250000 by the end of 5 years to acquire new imported machinery. To do so Randburg Ltd makes quarterly-annual deposits i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd