Why Bonds from One Issuer Can Have Different Credit Ratings

Summary

The document explains that an issuer-level credit rating does not necessarily determine the rating of every individual bond. Even bonds from the same obligor that share a seniority category can receive different issue ratings, because features in each bond’s structure or terms can affect its assessed credit risk. A sinking fund is offered as an example of a provision that may make one issue appear less risky than another otherwise similar issue.

The responses also cite rating methodology that addresses cases where several issues at the same capital-structure priority have different ratings. For a specified reference-rating purpose, that methodology uses the lowest issue rating. This is a narrow point about issue ratings and a particular methodological convention; the document does not provide a full account of rating factors or compare agencies’ approaches. Its examples establish that equal priority alone does not guarantee identical ratings.

Key ideas

• An issuer rating and the ratings of its individual debt issues are distinct.
• Bonds from the same obligor and seniority class can receive different ratings.
• Issue-specific provisions, such as a sinking fund, can affect perceived credit risk.
• A cited methodology uses the lowest rating among same-priority issues as its reference rating in the described cases.

Tags

# moody's credit ratings for senior unsecured bonds


# moody's credit ratings for senior unsecured bonds












Can 2 senior unsecured bonds from the same obligor have different moody's credit ratings? Or do they both have to have the same rating because they are in the same capital structure? Thanks

## Answer by jeff m (score 3)

https://quant.stackexchange.com/a/9566

Yes, you can have two different ratings. The issuer has one credit rating, but the individual issues, even if they are both senior unsecured/secured with the same maturity, coupon, etc. can have different ratings. The key factor is going to be the structure/provisions of the issue itself. For example, an issue with a sinking fund is going to be viewed as a lower credit risk than an issue without one, even though the two issues could potentially have the same coupon and maturity.

## Answer by ideate (score 0)

https://quant.stackexchange.com/a/9555

Based on this documentation from Moodys https://www.moodys.com/sites/products/DefaultResearch/2007300000572017.pdf

this section on p.3 seems to imply that it is possible for 2 senior unsecured bonds from the same obligor to have different ratings:

“In cases where the obligor has several debt issues outstanding at a given priority in the capital structure with different credit ratings, the lowest credit rating is taken as the reference rating.”

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.