Question

A company's bond ratings might in concept be similar to your own personal credit ratings. Use an example of how someone's personal credit rating might affect their financial life -- and then translate that to how a bond rating might affect a company's financial choices.

Answer 1

Bond credit rating for a company is reflecting the creditworthiness of the company in respect to discharge their debt and it will reflect the ability of the company to repay all of the loans.

Personal credit rating will be reflecting the creditworthiness on a part of an individual and his ability to deal with it's debt and his past performance in relation to the credit.

When an individual will be having a very high credit rating then he will be believed to be creditworthy & he can get loans very easy because he will be having a regular stream of income and past performance that would be leading to getting loans in quicker amount of time without much hindrances

Bond rating will also be helping the company to raise capital at various rates and if the company will have a lower credit rating then people will not be trying to subscribe its debt instrument and it will have to issue higher yield in order to attract people to subscribe its bonds, so, it is very important to have a high credit rating in order to raise finance at low rate and it will also be considered secured for the bondholders.