A Bond Rating is a means to assess a bond's creditworthiness, which relates to how much an issuer will pay to borrow money. In these ratings, bonds are often given a letter grade indicating their credit worthiness. Standard & Poor's, Moody's Investors Service, and Fitch Ratings Inc. are a few private, independent rating agencies that assess a bond issuer's financial stability, or its capacity to make timely principle and interest payments on bonds.The higher the rating of the bond (AAA is the best), the less likely it is that the borrower will default on its debt obligations and therefore offer investors relatively low risk for their investment dollar. Conversely, lower rated bonds present more risk for investors as there is greater potential for missed payments or even bankruptcy by the borrower company issuing the debt security in question.Rating agencies take into account various factors when assessing an entity’s ability to repay its debts including: historical performance data; current economic conditions; management quality; degree of leverage; liquidity position; and nature of industry in which company operates etc.
