The Name's Bond: What is a Credit Rating?

In our previous blog entry, we explained what bonds are and what “senior bonds” mean. Today, we’ll dive into credit ratings using an example from our portfolio.

What Is a Credit Rating?

A bond credit rating is an assessment of the creditworthiness of a bond issuer.

There are three major international credit rating agencies, known as the Big Three – Standards and Poor’s (S&P), Moody’s, and Fitch. These agencies assign issuers ratings on a scale ranging from AAA or Aaa (highest rating, positive outlook) to C or D (default risk, negative outlook). Although the scales differ slightly between agencies, bonds rated from AAA to BB are generally considered acceptable for investment.

The lower the issuer’s rating, the higher the bond’s coupon payments. This compensates investors for the risk they take. Investors rely on credit ratings to evaluate both the yield potential and the risk level of bonds.

Let’s take a look at an example from the engineering products and services sector.

Issuer: Oceaneering International, Inc.

The company provides engineering services, products, and robotic solutions for energy, defense, aerospace, manufacturing, and entertainment industries worldwide. Founded in 1964, it is headquartered in Houston, Texas.

• ISIN: US675232AB89
• Rank: Senior Unsecured
• Coupon: 6%, fixed
• Yield to Maturity: 6.35% annually
• S&P Global Ratings: BB, "Stable" outlook
• Moody’s: Ba3, stable outlook
• Gross Profit Margin: 17.26%
• Debt-to-Equity (D/E) Ratio: 68.3%
• Minimum Entry Amount: 200 000 USD

Conclusion:

This bond is considered stable, with a BB rating indicating a moderate level of risk. The company boasts a gross profit margin of 17.26%, reflecting consistent profitability. Its D/E ratio of 68.3% signifies a moderate level of debt.

Disclaimer: This financial advertisement is issued by Raison Securities Limited, authorized by AFSA under license No. AFSA-A-LA-2023-0004 to provide brokerage-dealer services, investment advisory, and investment deal organization services in the AIFC. This content is informational and does not constitute financial advice or recommendations regarding specific securities, sectors, or trading strategies. All investments carry risks, including the potential loss of principal. Seek professional advice before making decisions. Details are available on our website: raison.app.

Interested in buying private tech companies' shares with us? Check out our Wealth and Growth account plans, which provide you access to exclusive venture capital deals!

Disclaimer: “The use of the trademark is for informational purposes only and does not imply endorsement or affiliation. Additionally, the information in this communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities".