What Is A+/A1?
A+/A1 alludes to two ratings issued to long-term bonds and bond issuers by the contending credit rating agencies Standard and Poor's (S&P) and Moody's separately. S&P utilizes A+, and Moody's purposes A1, however both indicate basically the same thing.
Both A+ and A1 sit squarely in the center of the investment-grade category of their credit ranking systems. They connote that bonds are of high-quality and have many positive qualities, yet carry a marginally higher degree of long-term investment risk.
Both A+ and A1 address the fifth-highest rating a debt issuer or a debt instrument can receive.
At Moody's, the A1 rating comes after the Aaa, Aa1, Aa2, and Aa3 ratings. The A rating itself means that the bond (or whatever security is being rated) is "upper-mid-range grade and subject to low credit risk." The modifier 1 indicates that "the obligation ranks in the higher finish of its generic rating category."
At Standard and Poor's, the A rating comes after the AAA, AA+, AA, and AA-ratings. The A rating itself means a "strong capacity to meet financial commitments, yet somewhat vulnerable to adverse economic conditions and changes in circumstances." S&P further tweaks the evaluation by adding a + or - to the letter.
Both A+ and A1 are six rankings above the cutoff that separates investment-grade debt from high-yield, or non-investment-grade, debt, which carries ratings of Baa1/BBB+, Baa2/BBB, Baa3/BBB-, or even lower. The A+/A1 rating implies that the issuer or carrier has stable financial backing and ample cash reserves. The risk of default for investors or policyholders is exceptionally low.
The credit ratings assigned by the various rating agencies are based primarily upon the safety net provider's or alternately issuer's creditworthiness; it could be said, they are a quantified assessment of the creditworthiness of a borrower. A+ and A1, similar to all ratings, can be deciphered as a direct measure of the probability of default. In any case, credit stability and priority of payment are also factored into the rating.
Example of A+/A1
For example, XYZ Corp. is a company that is hoping to raise capital by giving long-term debt. A company creates a popular consumer product and has a strong balance sheet with bunches of free cash flow. It issues a responsible amount of debt and is easily able to make interest payments on its bonds until they mature — for the present.
Nonetheless, there are a few changes on the horizon that could affect the company's financial standing. There are signs that sales of its flagship product are slowing, and new environmental regulations could necessitate it making a few expensive upgrades to its factories and production methods.
Therefore, Moody's and S&P rank XYZ's debt an A+/A1. In this manner, they are saying the company has adequate capacity to meet financial commitments, along with many positive investment attributes; yet it also has components powerless to adverse effects of changes in economic conditions.
- Credit ratings are utilized by investors to gauge the creditworthiness of issuers, with better credit ratings relating to lower interest rates.
- Both A+ and A1 fall in the investment-grade category, indicating some however low credit risk.
- A+/A1 are credit ratings delivered by ratings agencies S&P and Moody's.