Rating services consider many key issues in deciding how to rate a bond, such as:
The bond issuer's overall financial condition
The issuer's debt profile
How fast the company's revenues and profits are growing
The state of the economy
How well similar corporations or governments are doing given the current economic environment
The primary concern of these rating services is to alert investors to the risks of a particular issue, and
to continue evaluating the financial condition of the bond's issuer until the bond reaches maturity.
Depending on the issuer's current and ongoing financial condition, a bond's rating may rise or fall in quality. A drop in a bond's rating is one of the risks you face as a bond investor. If an issuer's financial
condition deteriorates, rating services may downgrade the rating of a corporate or municipal bond. In the worst case scenario, the bond goes into
default.
Default occurs when the bond issuer fails to pay interest as it comes due and/or fails to repay the par value of the bond at
maturity.
