B1/B+

What Is B1/B+?

B1/B+ is one of several non-investment grade credit ratings (also known as "junk") that may be assigned to a company, fixed-income security, or floating-rate loan (FRN). This rating signifies that the issuer is relatively risky, with a higher than average chance of default. B1/B+ are ratings just below investment grade but are the highest rating in the non-investment grade bracket. 

Moody’s Investors Service uses B1, while S&P Global Ratings and Fitch Ratings use B+.

Understanding B1/B+

The ratings assigned by the various ratings agencies are based primarily upon the issuer's creditworthiness. This rating can, therefore, be interpreted as a direct measure of the probability of default. Ratings generally fall into two categories: investment grade and non-investment grade. Bonds that receive a non-investment grade rating are also known as "junk bonds."

Credit ratings are issued primarily by three ratings agencies: Moody's, Standard & Poor's, and Fitch. Moody's uses a combination of uppercase letters and numbers while S&P and Fitch used uppercase letters and plus and minus signs. For example, a B1 rating in the Moody's system is equal to a B+ in the S&P/Fitch system.

Ratings are assigned to bonds, floating-rate loans, and companies as a whole. Long-term ratings, as well as short-term ratings, are issued. Short-term ratings follow a different taxonomy. Credit ratings are also issued on government debt and follow the same system used for rating corporations.

Long-term investment-grade ratings run from Aaa (Moody's) and AAA (S&P/Fitch), indicating the most creditworthy bonds/loans or companies, to Baa3 (Moody's) and BBB- (S&P/Fitch). Non-investment grade ratings run from Ba1 (Moody's) and BB+ (S&P/Fitch) to C in the Moody's system, indicating the lowest rating above default. The lowest rating in the S&P/Fitch system is D for default.

Bond Ratings. Image by Sabrina Jiang © Investopedia 2020

Special Considerations 

When a company wants to issue a bond to raise money for any one of many purposes, it typically seeks out the services of the rating agencies to designate their credit opinions on the bond issue and the issuer itself. The ratings will assist in the price discovery process of the bond when it is marketed to investors. 

A B1/B+ rating is below investment-grade, sometimes referred to as speculative, high-yield (HY), or junk. Thus, the yield on the bond is generally higher than on an investment-grade security to compensate for the greater risk of payment default that the bond investor is taking on. The issue and issuer usually have the same rating, but they could be different if, for example, the issue is enhanced with additional credit protection for investors.