A rating downgrade is when a rating agency lowers a bond's rating, for example from AA to AA-, because it now sees a higher risk that interest or principal will not be paid in full and on time.
A downgrade usually lowers the bond's market price, because buyers want a higher yield for the extra risk. The interest the issuer must pay does not change unless the bond's terms include a step-up clause for downgrades; some do, so check the offer document.
Two kinds of downgrade matter most: a fall below investment grade (from BBB- to BB+ or lower), which can make the bond hard to sell, and a fall to D, which means a payment has been missed. Several one-notch downgrades in a short time are also a warning sign.
The agency's press release explains the reason. Read it, and check whether the issuer has other bonds, bank loans or commercial paper due soon.
Related
Related terms: Credit rating · Rating outlook · Bond default · Investment grade · D rating
Before investing, look up the issuer: all its outstanding bonds, rating history and disclosure documents.
This page is for information only. It is not investment advice, a credit rating or a recommendation to buy, sell or hold any security. Facts are taken from the issuer's own documents and the sources linked on this page; check them with the source before investing.
