medium · FRM Part 1 Financial Markets and Products
What happens to the credit rating of a bond if the issuer's overall creditworthiness improves, but the bond is subsequently subordinated to a new, larger debt issue?
- The bond's rating will automatically jump to AAA because default is less likely.
- The rating will move in lock-step with the issuer's rating regardless of seniority.
- The bond must be withdrawn from the rating agency because its terms have changed.
- The bond's rating may stay the same or change minimally as the improvement and subordination effects offset.
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