Question

A firm with a corporate family rating (CFR) of A3/A- Issues secured bonds. Covenants to these bonds include a limitation on liens and a change of control put. If credit rating agencies notch this issue. Its credit rating is most likely to be:

A) Baa1/BBB+

B) A2/A

C) Baa2/BBB

QUESTION 31

One notable difference between an issuer credit rating and an issue credit rating is that and

A) issue credit rating is always notched below the issuer rating.

B) issuer credit rating reflects the borrower's overall creditworthiness.

C) issue credit rating applies to the issuer's senior unsecured debt.

Answer 1

Q. 1). Option B). A2/A

Explanation :- Credit rating is the given question will be A2/A because the risk involved in bond issue (specifically credit risk with bond) is lower, accordingly, credit rating on bond issue will be very good only i.e., not less than A2/A.

Q. 2). Option B). issuer credit rating reflects the borrower's overall creditworthiness.

Explanation :- Option (B) to the given question is correct answer because the overall solvency and credit-worthiness of borrower is reflected in terms of issuer credit rating only. (Option A and C are not correct answers).