What Is B1/B+?
B1/B+ are one of several non-investment grade credit ratings (also known as "junk") that may be assigned to a company, fixed-income security, or floating-rate loan (FRN). These ratings signify that the issuer is relatively risky, with a higher-than-average chance of default. B1/B+ are ratings below investment grade but still one of the highest ratings in the non-investment grade bracket. Moody’s Corporation uses B1, while S&P Global Ratings and Fitch Ratings use B+.
Key Takeaways
- B1/B+ is a non-investment grade credit rating used by Moody’s, S&P, and Fitch for an issued debt instrument (generally a bond) or the issuer of the credit (i.e., company or business).
- Moody's uses the B1 rating, while S&P and Fitch use B+.
- B1/B+ are the one of highest-quality speculative rating, following Ba2/BB and Ba3/BB+.
- Companies typically seek the services of a credit rating agency for ratings of new issues in order to assist with transparency and price discovery for investors.
Understanding B1/B+
The ratings assigned by the various rating agencies are based primarily on the issuer's creditworthiness. This rating can, therefore, be interpreted as a direct measure of the probability of default. Ratings generally fall into two categories: investment grade and non-investment grade. Bonds that receive a non-investment grade rating are also known as "junk bonds."
Credit ratings are issued primarily by three rating agencies: Moody's, Standard & Poor's, and Fitch. Moody's uses a combination of uppercase letters and numbers while S&P and Fitch use uppercase letters and plus and minus signs. For example, a B1 rating in the Moody's system is equal to a B+ in the S&P/Fitch system.
Ratings are assigned to bonds, floating-rate loans, and companies as a whole. Long-term ratings, as well as short-term ratings, are issued. Short-term ratings follow a different taxonomy. Credit ratings are also issued on government debt and follow the same system used for rating corporations.
Long-term investment-grade ratings run from Aaa (Moody's) and AAA (S&P/Fitch), indicating the most creditworthy bonds/loans or companies, to Baa3 (Moody's) and BBB- (S&P/Fitch). Non-investment grade ratings run from Ba1 (Moody's) and BB+ (S&P/Fitch) to C in the Moody's system, indicating the lowest rating above default. The lowest rating in the S&P/Fitch system is D for default.
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Bond and Issuer Ratings
When a company wants to issue a bond to raise money for any one of many purposes, it typically seeks out the services of the rating agencies to designate their credit opinions on the bond issue and the issuer itself. The ratings will assist in theprice discoveryprocess of the bond when it is marketed to investors.
A B1/B+ rating is below investment-grade, sometimes referred to as speculative, high-yield (HY), or junk. Thus, the yield on the bond is generally higher than on an investment-grade security to compensate for the greater risk of payment default that the bond investor is taking on.The issue and issuer usually have the same rating, but they could be different if, for example, the issue is enhanced with additional credit protection for investors.
What Is a AAA Credit Rating?
A AAA credit rating is a credit rating assigned to a bond or bond issuer by either S&P or Fitch, which indicates the quality of that bond/bond issuer. AAA is the highest-quality rating a bond can have, meaning there is a strong capacity that the financial commitments will be met.
What Is the Difference Between Investment Grade and Non-Investment Grade?
Investment grade and non-investment grade are two buckets of credit ratings in which all credit ratings for a bond or bond issuer fall. Investment grade ratings indicate a higher quality rating with a reduced risk of default whereas non-investment grade constitutes higher-risk investments with an increased risk of default. Investment-grade securities have a lower rate of interest than non-investment-grade securities due to the lower risk.
Is a BBB Rating Better Than a BB Rating?
Yes, a BBB rating is better than a BB rating. A BBB rating indicates a higher quality bond with a lower chance of default than a BB rating. BBB is investment grade while BB is non-investment grade.
The Bottom Line
Credit rating agencies rate bonds and issuers based on creditworthiness: the likelihood that the bond will make its interest payments and be repurchased at maturity, in other words, evaluating the likelihood of default.
Ratings are based on a scale, which is broken down into two categories: investment grade and non-investment grade, with the former being of high quality with a low likelihood of default, but also with a lower interest rate due to the reduced risk. When investing in a bond, it's important to understand the credit rating that's been assigned to it to know the risk you're taking on.
