DEFINITION of 'A+/A1'

A+/A1 are ratings issued to long-term bond issuers by Moody's and S&P, respectively. The rating of the issuer designates the creditworthiness of the issuer. A+/A1 is the fifth highest rating a debt issuer can receive. It is six rankings above the cutoff that separates investment grade debt from high-yield, or non-investment grade debt. The A+/A1 rating signifies that the issuer or carrier has stable financial backing and ample cash reserves. The risk of default for investors or policyholders is very low.

BREAKING DOWN 'A+/A1'

A+/A1 is a credit rating in the middle of the investment grade credit ranking system. The rankings for Moody's and S&P from highest to lowest in the investment grade category are Aaa/AAA, Aa1/AA+, Aa2/AA, Aa3/AA-, A1/A+, A2/A, A3/A-, Baa1/BBB+, Baa2/BBB, Baa3/BBB-. The ratings assigned by the various ratings agencies are based primarily upon the insurer's or issuer's creditworthiness. This rating can, therefore, be interpreted as a direct measure of the probability of default. However, 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 looking to raise capital by issuing long-term debt. They are a company that produces a popular consumer product and have a strong balance sheet with lots of free cash flow. They issued a responsible amount of debt that they are easily able to make interest payments on over the life of the loan. However, there are some technological changes on the horizon that might affect the company's financial standing. Moody's and S&P ranked the debt a A+/A1.

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