Corporate Credit Ratings

Published on Nov. 11, 2011

Corporate credit ratings are issued by rating agencies in order to provide investors with better insight into how well a particular organization is operating and able to pay off its liabilities and financial obligations. The three largest rating agencies are Moody's, Standard and Poor's (S&P), and Fitch. Typically, these agencies will track and issue credit ratings for larger, national, and publicly traded companies.

The highest credit rating issued by the rating agencies is "AAA" and held by a small number of companies. Any corporate credit rating above BBB- (S&P's) or Baa3 (Moody's) is considered "investment grade." Any corporate credit rating below BBB- or Baa3 is considered an indicator of higher risk and refers to "speculative" or "junk" status. In light of the current economy, it is recommended that real estate investors select tenants that have an investment-grade credit rating.

Using Credit Ratings to Identify Stronger Investment Property

Since corporate credit ratings indicate the ability of a particular company to repay its obligations and liabilities, ratings can be useful in helping investors determine the strength of potential tenants as well as certain debt instruments. However, credit ratings alone are not a sufficient indicator of financial strength. An investor must review a corporation's current balance sheet, income statement, and statement of cash flows to obtain a comprehensive perspective of the corporation's financial health.

If you would like more information on the strength and credit of a major corporation, please let us know. We would be happy to help. We also provide our investors with detailed lists of corporations and their credit ratings as one strategy to quickly filter out weaker tenants and target stronger triple net (NNN) and other investment properties.