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Smart things to know about rating downgrades of debt securities

​What is a rating downgrade?
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​What is a rating downgrade?

Rating downgrade is a negative change in the credit rating of a debt security.

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​What is meant by 'ratings watch'?
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​What is meant by 'ratings watch'?

Before a rating downgrade, the security is placed on a ratings watch, which is an indicator to monitor and take corrective action.

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​What symbols are used to denote ratings?
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​What symbols are used to denote ratings?

To denote the highest credit quality, AAA symbol is used. This is followed by symbols AA, A, BBB, BB, B, C and D. The last is the lowest rating, indicating likelihood of a default.

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​What do these downgrades signify?
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​What do these downgrades signify?

Rating downgrade indicates that the business environment and/or financials of the issuer have deteriorated and the ability to repay interest and borrowing on time may not be possible.

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​What do they imply for investors?
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​What do they imply for investors?

Rating downgrade results in losses for investors as there is a fall in the price of the debt instrument.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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