Public Finance Division
Moody's - Definitions of Bond Ratings
Long-Term Issue Credit Ratings
| Aaa | Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. |
| Aa | Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than in Aaa securities. |
| A | Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment some time in the future. |
| Baa | Bonds that are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. |
| Ba | Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. |
| B | Bonds that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any long period of time may be small. |
| Caa | Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. |
| Ca | Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. |
| C | Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. |
Since October 1996 Moody's has applied numerical modifiers 1, 2, and 3 in each generic rating classification from Aa to B. (see Moody's Expanded Public Finance Rating Symbols chart below). The modifier 1 indicates that the issue ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that the issue ranks in the lower end of its generic category.
Moody's Expanded Public Finance Rating Symbols
| Previous Rating Symbol | New Rating Symbol |
|---|---|
| Aaa | Aaa |
| Aa1 | Aa1 |
| Aa | Aa2 |
| Aa3 | |
| A1 | A1 |
| A | A2 |
| A3 | |
| Baa1 | Baa1 |
| Baa | Baa2 |
| Baa3 | |
| Ba1 | Ba1 |
| Ba | Ba2 |
| Ba3 | |
| B1 | B1 |
| B | B2 |
| B3 | |
| Caa | Caa |
| Ca | Ca |
| C | C |
Short-Term Prime Rating System
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
| Prime-1 | Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of
senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following
characteristics:
|
| Prime-2 | Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. |
| Prime-3 | Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. |
| Not Prime | Issuers rated Not Prime do not fall within any of the Prime rating categories. |
Moody's Short-Term MIG/VMIG Ratings - US Tax-Exempt Municipals
There are four rating categories for short-term obligations that define an investment grade situation. These are designated Moody's Investment Grade as MIG 1 (best quality) through MIG 4 (adequate quality). Short-term obligations of speculative quality are designated SG.
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The first element represents an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other represents an evaluation of the degree of risk associated with the demand feature. The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
Issues or the features associated with MIG or VMIG ratings are identified by date of issue, date of maturity or maturities or rating expiration date and description to distinguish each rating from other ratings. Each rating designation is unique with no implication as to any other similar issue of the same obligor. MIG ratings terminate at the retirement of the obligation while VMIG rating expiration will be a function of each issue's specific structural or credit features.
| MIG 1/VMIG 1 | This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. |
| MIG 2/VMIG 2 | This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group. |
| MIG 3/VMIG 3 | This designation denotes favorable quality. All
security elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established. |
| MIG 4/VMIG 4 | This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk. |
| SG | This designation denotes speculative quality. Debt instruments in this category lack margins of protection. |