{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ratings and cost of debt (1)

Ratings and cost of debt (1) - Finance For Executives...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Finance For Executives INSEAD Ratings and the Cost of Debt Based upon US firms. Estimated spreads as of January 2003. Using the interested coverage ratio of a company, these tables give an estimate of the credit rating and the associated cost of debt (spread above the US-Treasury bill rate) For manufacturing firms For financial services firms If interest coverage ratio is If long term interest coverage ratio is greater than to Rating is Spread is greater than to Rating is Spread is -100000 0.20 D 14.00% -100000 0.05 D 14.00% 0.20 0.65 C 12.70% 0.05 0.10 C 12.70% 0.65 0.80 CC 11.50% 0.10 0.20 CC 11.50% 0.80 1.25 CCC 10.00% 0.20 0.30 CCC 10.00% 1.25 1.50 B- 8.00% 0.30 0.40 B- 8.00% 1.50 1.75 B 6.50% 0.40 0.50 B 6.50% 1.75 2.00 B+ 4.75% 0.50 0.60 B+ 4.75% 2.00 2.50 BB 3.50% 0.60 0.80 BB 3.50% 2.50 3.00 BBB 2.25% 0.80 1.00 BBB 2.25% 3.00 4.25 A- 2.00% 1.00 1.50 A- 2.00% 4.25 5.50 A 1.80% 1.50 2.00 A 1.80% 5.50 6.50 A+ 1.50% 2.00 2.50 A+ 1.50% 1
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Finance For Executives INSEAD 6.50 8.50 AA 1.00% 2.50 3.00 AA 1.00% 8.50 100000 AAA 0.75% 3.00 100000 AAA 0.75% Special Cases No interest expenses, No debt No problem. Your interest coverage ratio should be infinite and your rating should be AAA. Before you
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}