Angie · learn
Credit rating
An agency's opinion on how likely a borrower is to repay. Investment grade above BBB−, high yield below it, and the agencies are paid by the issuer.
Updated 2026-09-05
A credit rating is an agency's opinion on how likely a borrower is to repay. Investment grade runs down to BBB−; anything below is high yield, which is the polite name for junk.
It feeds valuation through the cost of debt, because a lower rating means a higher borrowing cost, which raises the blended discount rate. The structural criticism is worth remembering: the agencies are paid by the issuers they rate, and that arrangement failed conspicuously in 2008.
See also
- Bond — A loan to a company or government, repaid on a fixed schedule with interest. You are a creditor, not an owner, and you get paid before shareholders.
- Cost of debt — The implied interest rate the company actually pays. Applied after the tax shield in the WACC, because interest is tax-deductible and equity dividends are not.
- Total debt — Short-term plus long-term borrowings, before any cash is netted off.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
