A bond rating assesses the credit-worthiness of the debt a company issues. A bond rating is similar to a credit score or a FICO score for individuals. Moody's is the main rating agency in the U.S.---it is responsible for rating any debt security traded on a U.S. exchange. Moody's credit ratings range from Aaa (prime) to Ca (in default with little prospect of recovery). A bond's rating is directly proportional to the return the bond is expected to generate. Consequently, understanding how to locate a bond rating is critical if you plan to invest in corporate bonds.
Obtain a prospectus for the bond you are interested in purchasing. If you have an online brokerage account, you can search for the bond by the name of the issuer and download the prospectus directly from the website. Alternatively, you can write to the investor relations department of the issuer and request a hard copy of the prospectus. Specify which issuance you are interested in.
Locate the bond's CUSIP number, which is usually located in the lower left corner of the first page of the prospectus. The CUSIP number is a unique identification number that will quickly allow you to locate the bond's credit rating.
Visit the Moody's website (see Resources) and enter the bond's CUSIP number in the search box in the top right corner of the home page. Click the "go" button, and the resulting web page will give you the bond's rating. If you do not have the CUSIP number, you can search by the issuer's name. However, the resulting web page will give you all of the securities (both debt and equity) issued by the company---make sure that you carefully identify the specific security you are interested in.
Cross-reference the rating you get from Moody's with a rating from S&P, the other major rating agency in the U.S. Visit the S&P website (see Resources), choose "find a rating" from the "Task Selector" menu and click the "Bond Issuance" link on the left side of the new page. Enter the CUSIP number in the search box and click enter to get a rating from S&P.
Tips & Warnings
- Bond ratings are only one metric you should use when deciding whether to invest in a bond. Take time to familiarize yourself with the industry and operations of the company before investing in that company's bonds.Keep in mind that lower rated bonds will pay higher interest rates but also have a much higher probability of default.
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