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RatingThe classification of the quality of bonds by various rating services.A bond is basically an IOU - a promise to pay back your original investment at a later date, plus interest payments at regular intervals between now and then. Like all IOUs, its credit-worthiness depends on the borrower. There are broadly three types of borrowers:Governments of leading nationsThese can be relied on to honour their obligations to bondholders. The UK government has never defaulted, i.e. failed to pay interest or principal, on its bonds. These are known as gilts, from the old days when gilt-edged certificates were issued. Your pension fund has to buy these to guarantee they will be able to pay you an annuity when you retire.CompaniesThese are always regarded as more risky than gilts, because companies sometimes default. But obviously, the stronger they are financially, the less likely this is. Rating agencies like Moodys and Standard & Poors give ratings to bonds, so you can tell how risky the market thinks they are. AAA is the safest category. Anything in the B category or below would be too risky for the average investor.Governments of developing nationsThese have proved to be very unreliable in the past. For example, Russia, Mexico and Brazil are all previous defaulters. Investing in this type of bond is strictly for risk-takers.For information on the credit rating services of Moodys, S&P and Fitch IBCA, see 'bond rating'.Similar MatchesBond ratingBond ratingCorporate and government bonds are generally considered a safe form of investment compared to shares, in the sense that you are 'guaranteed' to get repayment of the principal and interest payments. But the value of the 'guarantee' depends substantially on who has issued the bond - a financially healthy issuer, or one that is struggling to meet its borrowing obligations.Credit rating agencies like Moody's and Standard & Poor's (S&P) and Fitch IBCA provide a service to the investment community by grading bonds according to how likely it is that the issuer will default either on interest or capital payments.For S&P the ratings vary from AAA (the most secure) to D which means the issuer is already in default.For Moody's the ratings go from Aaa to D.Only bonds with a rating of BBB or better are considered 'investment grade' - that is, secure enough for institutions to invest in. Anything below that grade is 'non-investment grade' or 'junk'.The ratings which S&P and Moody's give a bond are continually checked and revised in the light of new research done by those firms. When a bond is downgraded it is a serious event for the issuer because it makes it harder (or more expensive) to raise new borrowings, but it is also bad news for holders of the bonds, because the market invariably marks down the value of the bond. Operating riskOperating riskThe inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. Operating AssetsOperating AssetsAnother term for working capital. Hulbert ratingHulbert ratingA rating by Hulbert Financial Digest (of Alexandria, Virginia) of how well the recommendations of various investment advisory newsletters have performed. Experience ratingExperience ratingA technique insurance companies use to determine the correct price of a policy premium. Further SuggestionsNet operating loss carrybacksNet operating loss carryforwards S&P Rating operating costs operating profit Stock rating Operating cycle operating margin Credit rating Operating system Net operating losses Non Vessel Operating Common Carriers (NVOCC) Appel Loan (Accelerating Payoff Progressive Equity Loan) Bond rating Split rating operating cash flow Operating lease Whites rating Credit Rating Agencies Operating in the red Operating expenses Chief Operating Officer (COO) Operating profit margin Operating rate credit rating |
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