What is a rating downgrade? Key points to know

1.When credit rating agencies lower the rating of any issuer, it is said to be a rating downgrade.
2.A downgrade indicates a higher risk of default as the issuer’s ability to make scheduled interest or principal payments becomes questionable.
3.It could be due to the deteriorating balance sheet of the issuer, with rising debt or falling cash flow.
4.It Could also be due to unfavorable business conditions, with dropping profit margins or litigation.
5.A downgrade leads to a fall in bond prices and an increase in yield.


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