DEFINITION of 'A-/A3'

A-/A3 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-/A3 is the seventh highest rating a debt issuer can receive. It is four rankings above the cutoff that separates investment grade debt from high-yield, or non-investment grade debt. The A-/A3 rating signifies that the issuer or carrier has mostly financial backing and some cash reserves. The risk of default for investors or policyholders is somewhat low.

BREAKING DOWN 'A-/A3'

A-/A3 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 and 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 an A-/A3 Rating

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 consumer product that used to be popular, but has lost market share recently and the company's revenues have been shrinking. They are experiencing reduced free cash flow and their balance sheet fundamentals are weakening. However, they still have a great record of servicing their debt. Moody's and S&P ranked the debt an A-/A3.

RELATED TERMS
  1. A+/A1

    A+/A1 are ratings assigned to long-term bond issuers by Moody's ...
  2. Rating

    A rating is an assessment tool assigned by an analyst or rating ...
  3. Bond Rating Agencies

    Bond rating agencies are companies that assess the creditworthiness ...
  4. Ba2/BB

    Ba2/BB are ratings by Moody's Investor Service and S&P Global ...
  5. Default Risk

    Default risk is the event in which companies or individuals will ...
  6. Moody's

    An independent research company, through its subsidiaries Moody's ...
Related Articles
  1. Investing

    When To Trust Bond Rating Agencies

    Despite investor distrust, rating agencies can be helpful. Just be sure you use these ratings as a starting point.
  2. Investing

    The Debt Ratings Debate

    Lack of competition and potential conflicts of interest have called the value of these ratings into question.
  3. Investing

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  4. Personal Finance

    A Brief History Of Credit Rating Agencies

    Credit rating agencies have a long history in the U.S. Learn about what they do and how were they developed.
  5. Investing

    Why You Shouldn't Trust Ratings From Rating Agencies

    When the U.S. debt was downgraded, what does that really mean?
  6. Personal Finance

    The Power of Major Credit Rating Agencies

    The performance of major independent credit rating agencies is a controversial topic, particularly due to the strength of their influence.
  7. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  8. Investing

    Chinese Tech Firms Could Be Hurt By Their Finance Arms: Moody's

    The finance arms of China's tech darlings has Moody's a bit concerned about the quality of the credit, particularly when it comes to Baidu.
RELATED FAQS
  1. What does investment grade mean?

    Investment grade refers to the quality of a company's credit rating, which is based upon their financial strength, future ... Read Answer >>
  2. How do companies like Moody's rate bonds?

    Rating the creditworthiness of a bond issuer, despite the number crunching, is as much an art form as it is a science. While ... Read Answer >>
  3. Under what circumstances might an issuer redeem a callable bond?

    Understand why an interest rate drop usually compels bond issuers to redeem callable bonds and re-issue them at the new, ... Read Answer >>
  4. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  5. What is the difference between credit rating and equity research?

    Find out how and why investors look at credit ratings and equity research to help inform their decisions for different types ... Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center