What Is an Investment Grade Credit Rating?

An investment grade credit rating provides potential investors with a measure of a company's credit worthiness and financial stability. Generally, an investment grade rating is held by the strongest companies, but varies in risk from zero risk to medium risk. Currently, three companies are sanctioned by the Securities and Exchange Commission to publish bond quality ratings: S&P, Moody's and Fitch.

Bond Issues

Businesses issue bonds to finance projects, mergers and expand operations. Bonds work like a credit card. If a company pays on time, the credit rating is favorable. If the company defaults on its debt, its credit rating suffers. This information is published by the three rating agencies.

Investment Grade Credit Rating

An investment grade credit rating is a favorable credit rating achieved by the strongest companies. The investment grade category holds all the highest bond ratings.

Moody's

Moody's is a credit, rating, analysis and research firm. Moody's investment credit rating is divided into 4 categories denoted as Aaa for the highest quality bonds; Aa for high quality; A-1 and A for upper medium; Baa-1 and Baa for medium grade.

Standard & Poor

Standard & Poor's (S&P) investment grade categories are denoted as AAA for the highest quality; AA for high quality; A for upper medium; and BBB for medium grade.

Fitch Ratings

Fitch Ratings uses the exact same rating system as S&P for investment grade credit ratings.

References

• Fidelity Investments: Bond Ratings
• Fitch Ratings: What Credit Ratings Mean
• Securities Industry and Financial Markets Association: How do Credit Ratings Affect Yield?

Resources

• U.S. Securities and Exchange Commission: Briefing on Bonds