B3/B- refers to the letter grades ratings agencies assign to companies, issuers and securities. Ratings are meant to be indicators of the ratee’s creditworthiness. The ratings agencies measure both ability and willingness to pay in arriving at their ratings. Importantly, the agencies’ ratings are considered opinions rather than investment recommendations. The three main agencies, those whose ratings have the most clout with regulators, lenders and investors are Moody’s, Standard & Poor’s (S&P) and Fitch. While Fitch and S&P grade companies on a straight A-D scale, Moody’s scale uses a mix of letters and numbers.


Credit ratings fall into two broad categories: investment grade (high grade) and speculative grade. The latter is also called non-investment grade, high yield, or pejoratively, junk (i.e., junk bonds). Companies considered to be investment grade generally have long track records, large and stable cash flows, high profitability, solid market management teams with a history of good execution on business strategy, and strong market shares.

The demarcation between investment grade and non-investment grade is BBB-. Non-investment grade ratings indicate riskier industry and business profiles, significantly less financial stability and flexibility, meaning greater uncertainty involving their ability to repay debt.

Within the non-investment grade category, BB-rated companies and entities are considered less risky than those with low single B ratings. B3/B- ratings signify a higher risk of default and greater risk to investors or policyholders. Moody’s assigns its B3 rating for “obligations considered speculative and subject to high credit risk.” Entities that receive this rating may be experiencing financial instability or hold inadequate cash reserves relative to their business needs, debt or other financial obligations.

Since the grades assigned by the various ratings agencies are based primarily upon their judgment of creditworthiness, they are interpreted as measuring the probability of default for a given issuer or issue. However, credit stability and priority of payment are also factored in. Ratings agencies add further context to their ratings by assigning outlooks. Issuers can have Positive, Stable or Negative outlooks attached to their ratings. These are meant to give an indicator of the likely next probably move (upward or downward) with regard to credit rating. Company (issuer) ratings may differ from those of the debt they issue. For instance, debt issued by a company’s subsidiary can have a different rating than it does, reflecting differences in creditworthiness and repayment ability. Additionally, different types of debt issued by the same company can all have different ratings.

Ratings play an important role in professional investors’ decisions because of government regulations that require many types of debt to have ratings from two different ratings agencies. Also, many investment funds have policies/guidelines that restrict their securities holdings to investment grade debt, or place limits on how much non-investment grade debt can be held.

  1. Default Risk

    Default risk is the event in which companies or individuals will ...
  2. Downgrade

    A downgrade is a negative change in the rating of a security. ...
  3. Rating

    A rating is an assessment tool assigned by an analyst or rating ...
  4. Aa2

    Aa2 is the third highest credit rating that ratings agency Moody’s ...
  5. Corporate Credit Rating

    A corporate credit rating is an opinion of an independent agency ...
  6. A-Credit

    A-Credit is a high grade a lender can assign to a borrower when ...
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