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Unformatted text preview: some bond issues have many bondholders. The trustee monitors the issuer to ensure that it complies with all terms of the indenture. If the borrower violates the terms, the trustee initiates action against the issuer and represents the bondholders in this action. 49 49 Bond Rating A bond rating is an assessment of the creditworthiness of the issuer. Major rating services include Standard & Poor’s Corporation (S&P), Moody’s Investors Service, Inc. (Moody’s), and Fitch. The purpose of bond ratings is to help investors assess default risk, which is the possibility that the issuer will fail to meet its obligations as specified in the indenture. Bond ratings range from AAA (S&P) or Aaa (Moody’s), the highest or prime grade, to D, debt in default. Investment­grade securities have a rating of at least BBB by S&P or Baa by Moody’s, while the remaining represent noninvestment grade securities, commonly referred to as junk bonds. 50 50 Moody’s and S&P’s Bond Ratings Moody’s and S&P’s Bond Ratings Moody’s Interpretation S&P Interpretation Aaa Prime Quality...
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