A+/A1 Credit Ratings: Understanding Moody's and S&P's Investment Grades

What Is A+/A1?

A+ /A1 are credit ratings assigned by Standard & Poor's (S&P) (A+) and Moody's (A1) to long-term bonds and issuers, representing mid-level investment-grade quality.

These ratings indicate strong creditworthiness and low default risk, though with slightly higher long-term risk than top-rated bonds. While both agencies use different symbols, A+ and A1 reflect comparable levels of stability and reliability within their respective rating systems.

Decoding A+/A1 Credit Ratings

Both A+ and A1 represent the fifth-highest rating a debt issuer or a debt instrument can receive.

At Moody's, the A1 rating comes after the Aaa, Aa1, Aa2, and Aa3 ratings. The A rating itself denotes that the bond (or whatever security is being rated) is "upper-medium grade and subject to low credit risk." The modifier 1 indicates that "the obligation ranks in the higher end of its generic rating category."

At Standard & Poor's, the A rating comes after the AAA, AA+, AA, and AA- ratings. The A rating itself denotes a "strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances." S&P further fine-tunes the evaluation by adding a + or – to the letter.

Both A+ and A1 are six levels above the cutoff separating investment-grade from high-yield debt, such as Baa1/BBB+ and lower. The A+/A1 rating signifies that the issuer or carrier has stable financial backing and ample cash reserves. The risk of default for investors or policyholders is very low.

Credit ratings mainly assess an insurer’s or issuer’s creditworthiness, providing a measure of a borrower's financial reliability. A+ and A1, like all ratings, can be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating.

Real-World Example of A+/A1 Ratings

For example, XYZ Corp. is a company that is looking to raise capital by issuing long-term debt. It is a company that produces a popular consumer product and has a strong balance sheet with lots of free cash flow. It issues a responsible amount of debt and is easily able to make interest payments on its bonds until they mature—for now.

However, there are some changes on the horizon that might affect the company's financial standing. There are signs that sales of its flagship product are slowing, and new environmental regulations might necessitate it making some costly upgrades to its factories and production methods.

As a result, Moody's and S&P rank XYZ's debt an A+/A1. In so doing, they are saying the company has adequate capacity to meet financial commitments, along with many positive investment attributes; but it also has elements susceptible to adverse effects of changes in economic conditions.

The Bottom Line

A+/A1 ratings, assigned by S&P and Moody's, respectively, represent mid-tier investment-grade bonds with strong credit quality and low default risk. These ratings suggest that issuers, such as a company, have solid financial stability but remain somewhat exposed to economic downturns.

For investors, A+/A1 ratings help gauge creditworthiness and influence the interest rates offered on bonds, balancing security with moderate risk in long-term investments.