hard · Corporate Credit Analysis Ratings, Syndication & Market Dynamics
An issuer holds a BBB- Issuer Credit Rating and issues a fully secured term loan supported by a first-priority lien over substantially all assets, with an estimated Recovery Rating of 1 (90%-100% recovery in a hypothetical default).
Under standard rating agency notching conventions, what is the most likely issue rating assigned to the secured term loan?
- AA-, the maximum uplift rating agencies apply for Recovery Rating 1, per the standard speculative-grade notching scale.
- BBB-, matching the Issuer Credit Rating; recovery notching is generally not applied at investment-grade rating levels.
- BBB+, a two-notch uplift for Recovery Rating 1, applying the same convention used for speculative-grade issuers.
- BB+, notched down from BBB- since secured term loans are viewed as structurally subordinate to unsecured bonds.