Difference between higher and lower cost financing

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Reference no: EM13216688

The three most prominent bond rating agencies are Standard & Poor's, Moody's and Fitch (Investopedia.com, 2014). Ratings mean the difference between higher and lower cost financing. Corporations can achieve a lower cost of financing when their bonds are rated highly and a higher cost of financing when their bonds are low rated (Madura, 2013). When ratings fall the valuation of a bond is lowered because their ability to pay is lowered, or rather, the bond is more risky, according to Jeff Madura in Financial Markets and Institutions. An economic event that caused ratings to change was the credit crisis of 2008. Rating agencies were slow to downgrade ratings which led to default and the creation of the Office of Credit Ratings, which is housed within the Securities and Exchange Commission (Madura, 2013). The change in ratings occurred because the ability of the issuer to repay their debt changed (Madura, 2013).

Reference no: EM13216688

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