hard · Corporate Credit Analysis ratings

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?

  1. AA-, the maximum uplift rating agencies apply for Recovery Rating 1, per the standard speculative-grade notching scale.
  2. BBB-, matching the Issuer Credit Rating; recovery notching is generally not applied at investment-grade rating levels.
  3. BBB+, a two-notch uplift for Recovery Rating 1, applying the same convention used for speculative-grade issuers.
  4. BB+, notched down from BBB- since secured term loans are viewed as structurally subordinate to unsecured bonds.

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