Mai
Nguyen
Dawn of Finance
65
Issuer credit ratings
corporate family ratings
(CFR)
Issue-specific ratings
corporate credit ratings
(CCR)
based on the overall creditworthiness of the
company
rated on issuer’s
senior unsecured debt
depend on the seniority of a bond
issue and its
covenants
Highest rating
Triple A (AAA or Aaa)
Investment grade
Bonds with ratings of
Baa3/BBB- or higher
Noninvestment grade/ High
yield bonds/ Junk bonds
Bonds rated
Bal/BB+ or lower
Bonds in default
Bonds rated
D by Standard & Poor's and Fitch/ rated
C by Moody's
Cross default provision (
điều khoản vi phạm chéo) the provision in bond indentures that may
trigger default on the remaining issues when a company defaults on one of its several outstanding
bonds
Notching:
o Is the practice by rating agencies
of assigning different ratings to
bonds of the
same issuer.
o Based on several factors, including
seniority of the bonds
its impact on potential loss severity
structural subordination:
In a holding company structure, both the parent company and the subsidiaries may
have outstanding debt.
A subsidiary's debt covenants may restrict the transfer of cash or assets "upstream" to
the parent company before the subsidiary's debt is serviced.
subsidiary's bonds have a priority claim to the subsidiary's cash flows.
parent company's bonds are effectively subordinated to the subsidiary's bonds.
o For
lower-rated issuers, higher default risk leads to significant differences between
recovery
rates of debt with different seniority, leading to
more notching.
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