What Are Ba1/BB+?
Ba1/BB+ are rating designations by Moody's Investor Service and S&P Global Ratings, respectively, for a credit issue or an issuer of credit that signify higher degrees of default risk on the agencies' rating spectrums. Ba1/BB+ sits just below investment-grade ratings.
Moody's Investor Service and S&P Global Ratings assign ratings to bonds, preferred stock, and government entities. The ratings reflect the assessed risk of the security and how likely the borrower is to make interest payments.
- Moody's and S&P Global issue ratings on bonds, preferred stock, and government entities that speak to the risk and the borrower's likelihood for repayment.
- The ratings are closely watched by investors worldwide; ratings veer from AAA, for the highest-quality, lowest-risk issuers, down to C, for the issuers in default and unlikely to repay the principal.
- Ba1/BB+ is a rating in the middle of that range, reflecting an issuer that has some risk of default, but is still a safer investment than others; it is considered to be just below investment grade.
How Ba1/BB+ Works
The Ba1/BB+ rating, as well as all others set by Moody's and S&P, have descriptive guidelines. Ratings apply to both the credit instrument that is issued and the issuer of the credit instrument.
Issue*: For Moody's, an issue rated Ba1 is judged to be speculative and [is] subject to substantial credit risk. The modifier '1' indicates that the obligation ranks in the higher end of its generic rating category. For S&P, an issue rated BB+ is regarded as having significant speculative characteristics and while such obligations will likely have some quality and protective characteristics, these may be outweighed by significant uncertainties or major exposures to adverse conditions. The modifier '+' means it has a stronger relative standing among Ba-rated credits.
Issuer*: For Moody's, issuers assessed Ba1 are judged to be speculative and are subject to a substantial risk of defaulting on certain senior operating obligations and other contractual commitments. For S&P, an obligor rated BB[+] is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitments.
(*sources: Moody's Investor Service, S&P Global Ratings)
The Function of Ratings
When a company wants to issue a bond to raise money any one of many purposes, it typically seeks out the services of the rating agencies (Moody's and S&P are the two major ones, but there are others) to designate their credit opinions on the bond issue and on the issuer itself. The ratings will assist in the price discovery process of the bond when it is marketed to investors. A Ba1/BB+ rating is below investment-grade, or sometimes referred to as high-yield or junk; therefore, the yield on the bond should be higher than on investment-grade security to compensate for the greater risk of payment default that the bond investor is taking on.
The issue and the issuer usually have the same rating, but they could be different if, for example, the issue is enhanced with additional credit protection for investors (the bond may have a higher rating), or if the structure of the issue is such that weaker credit protection exists, in which case the bond could be a Ba2/BB instead of Ba1/BB+.