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CS Professional · Strategic Management and Corporate Finance · Role of Intermediaries in Fund Raising

A credit rating agency assigns a long-term NCD issue of Kaveri Power Ltd the rating 'AA+ (Stable)'. Which statement best describes what this rating conveys to investors?

The rating is an opinion on the issuer's relative ability to service the debt on time, and AA+ indicates high credit quality with low credit risk. It is not a guarantee of payment, a buy-sell recommendation, or a statement about the security charged.

  1. AA guarantee by the agency that interest will be paid on time
  2. BA recommendation to buy, hold or sell the debentures at current market price
  3. CAn opinion on the issuer's relative capacity to service the debt on time, with high credit qualityCorrect
  4. DAn assurance that the debentures are secured by a first charge on all assets

Explanation

A rating is the agency's opinion on the likelihood of timely servicing of debt obligations; AA indicates high safety and low credit risk. It is neither a guarantee nor a buy/sell recommendation, and it does not by itself say anything about the nature of security charged.

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