Bond ratings are letter-grade opinions issued by credit rating agencies that measure the likelihood a bond issuer will repay its debt. The three agencies that dominate the market, S&P Global, Moody’s, and Fitch, use overlapping but distinct scales that run from AAA (strongest capacity to pay) down to D (in default). A bond is classified as investment grade when it carries a rating of BBB- or higher from S&P and Fitch, or Baa3 or higher from Moody’s. Everything below that line is speculative grade, also called high yield or junk.
The ratings look simple on the page. They are not simple in practice. A single notch, the difference between BBB- and BB+, changes which institutional investors can legally hold the bond, what the issuer pays to borrow, and how the market prices default risk. For a net lease real estate investor evaluating a credit tenant, that same notch can move cap rates by 100 to 200 basis points.
This page is the definitive reference for how the three agencies score credit. Every rating on every scale is shown side by side, with a live example of a company at that rating, current Q1 2026 market context, and the plain-English meaning of each notch.
The Bond Rating Scale at a Glance
The master comparison table below shows every notch on all three agency scales, the risk category it falls into, and a real-world corporate example of an issuer currently at that rating. Investment grade sits in the top four rating categories (AAA, AA, A, BBB at S&P and Fitch; Aaa, Aa, A, Baa at Moody’s). Speculative grade begins at BB+/Ba1 and runs down through the C tiers to D (default).
| S&P / Fitch | Moody’s | Risk Category | Example Issuer (2026) |
|---|---|---|---|
| AAA | Aaa | Prime | Microsoft, Johnson & Johnson |
| AA+ | Aa1 | High Grade | U.S. Treasury, Apple (Aaa at Moody’s) |
| AA | Aa2 | High Grade | Walmart |
| AA- | Aa2 / Aa3 | High Grade | ExxonMobil, Chevron (split rated) |
| A+ | A1 / Aa2 | Upper Medium Grade | Costco, Shell, Wells Fargo, TD Bank, JPMorgan Chase, Bank of America |
| A | A2 | Upper Medium Grade | Home Depot, Target, Amazon |
| A- | A3 | Upper Medium Grade | Chipotle, UPS, Realty Income |
| BBB+ | Baa1 | Lower Medium Grade | Starbucks, Lowe’s, Best Buy, O’Reilly, Circle K |
| BBB | Baa1 / Baa2 | Lower Medium Grade | Kroger, Taco Bell, Tractor Supply, AutoZone |
| BBB- | Baa3 | Lower Medium Grade (IG floor) | Dollar General, Dollar Tree, Casey’s, Fresenius Medical, BioLife |
| BB+ | Ba1 | Non-Investment Grade | Popeyes, Nordstrom, Macy’s |
| BB | Ba2 | Non-Investment Grade | National Vision, DaVita |
| BB- | Ba3 | Non-Investment Grade | Wendy’s, Advance Auto Parts |
| B+ | B1 | Highly Speculative | Pacific Dental, Athletico |
| B | B2 | Highly Speculative | Aspen Dental, Michaels |
| B- | B3 | Highly Speculative | Hertz, Heartland Dental |
| CCC+ | Caa1 | Substantial Risk | EyeCare Partners |
| CCC | Caa2 | Substantial Risk | Smile Brands |
| CCC- | Caa3 | Extremely Speculative | Distressed issuers only |
| CC | Ca | Default Imminent | Pre-bankruptcy issuers |
| C | C | In Default, No Recovery | Bankruptcy-stage issuers |
| D | / | In Default | Rite Aid (2023), 99 Cents Only (2024), Joann (2025) |
Ratings current as of Q1 2026. Sources: S&P Global Ratings, Moody’s Ratings, Fitch Ratings. Issuer ratings change. Always verify current ratings before making investment decisions.
The Three Agencies Behind Every Rating
S&P Global Ratings, Moody’s Ratings, and Fitch Ratings are the Nationally Recognized Statistical Rating Organizations (NRSROs) that control roughly 95 percent of the global credit rating market. Each issues independent opinions on the same issuers, which is why it is common to see a bond carry two or three ratings that agree within one notch of each other. Occasionally ratings diverge by more than one notch. Those are called split ratings and they signal genuine disagreement about an issuer’s credit quality.
The scales differ in notation but align in structure. S&P and Fitch use the same alphabetical system (AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, and so on). Moody’s uses a distinct capitalization and numerical modifier (Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3). A plus or minus at S&P and Fitch indicates the upper or lower third of a broader rating band. Moody’s numerical modifiers work the same way: 1 is the upper third, 2 the middle, 3 the lower third.
For a deeper look at how each agency scores credit and where their methodologies differ, see our overview of the role of credit rating agencies and the dedicated guide to Moody’s 2026 investment grade ratings.
Investment Grade vs Speculative Grade: The BBB- Line
The single most consequential line on any bond rating scale sits between BBB- and BB+ (Baa3 and Ba1 at Moody’s). That one notch separates investment grade from speculative grade. It is not an academic distinction. It determines capital flow at institutional scale.
- Pension funds, insurance companies, sovereign wealth funds, and endowments operate under mandates that restrict fixed-income holdings to investment grade. When an issuer falls below the BBB- line, it drops out of the investable universe for trillions of dollars of institutional capital overnight.
- Bank regulatory capital requirements treat investment grade and speculative grade holdings differently. Banks hold less regulatory capital against IG exposures, which makes them cheaper to own on the balance sheet.
- Index inclusion and exclusion cascades from this line. The major IG indices (Bloomberg US Corporate, ICE BofA US Corporate) exclude anything below BBB-. HY indices (Bloomberg US Corporate High Yield, ICE BofA US High Yield) exclude anything above BB+. A downgrade across the line forces index-tracking funds to sell.
- Borrowing costs step down sharply for IG issuers. In Q1 2026, the yield spread between BBB- rated bonds and BB+ rated bonds is approximately 100 to 150 basis points, reflecting the risk premium demanded by the smaller pool of buyers willing to hold speculative paper.
For NNN real estate investors, the same BBB- line matters because the market repricing that happens to bonds also happens to real estate backed by those tenants. When Walgreens lost investment grade status, cap rates on Walgreens-tenanted buildings widened materially. See what investment grade actually means for the full case study on how a credit threshold crossing translates into real estate repricing.
The Prime Tier: AAA / Aaa
AAA is the top of the scale. The rating is given only to issuers whose capacity to meet financial obligations is described by S&P as “extremely strong.” As of Q1 2026, the AAA club is remarkably small.
Only two U.S. corporations currently hold AAA ratings from S&P: Microsoft Corporation (MSFT) and Johnson & Johnson (JNJ). Thirty years ago there were more than 60. Today there are two. Moody’s also rates Apple Inc. at Aaa after a recent upgrade, placing Apple in the small group of U.S. corporate issuers at the top of at least one agency’s scale.
The U.S. federal government is no longer in the AAA club at any of the three major agencies. S&P downgraded the United States to AA+ in August 2011. Fitch followed to AA+ in August 2023. Moody’s, the last holdout, downgraded the U.S. to Aa1 in May 2025, citing the projection that federal debt would reach 134 percent of GDP by 2035. That Moody’s action ended a rating continuity that dated to 1917.
The practical implication is unusual: Microsoft and Johnson & Johnson are judged by S&P to have a stronger capacity to repay debt than the U.S. Treasury itself. This is not a theoretical ranking. It affects how global institutional capital allocates between sovereign debt and the highest-grade corporate issuers during periods of fiscal stress.
High Grade: AA+ / AA / AA- (Aa1 / Aa2 / Aa3)
The AA tier sits just below prime. S&P describes AA as “very strong capacity to meet financial commitments.” Default risk at this level is extremely low, historically below 0.10 percent over one year.
For net lease real estate investors, the AA tier is where the most conservative institutional capital concentrates. These tenants include:
- AA+ / Aa1: U.S. Treasury, Apple (S&P AA+, Moody’s Aaa)
- AA / Aa2: Walmart
- AA- / Aa2 (split): ExxonMobil, Chevron
Cap rates on AA-tenanted NNN real estate typically range from 4.00 percent to 5.25 percent. These properties trade to REITs, pension funds, family offices, and 1031 exchange buyers who prioritize safety of principal over yield. Lease terms often extend 20 to 25 years with corporate guarantees.
Upper Medium Grade: A+ / A / A- (A1 / A2 / A3)
S&P describes the A tier as “strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions.” The rating still signals very low default risk, but the issuer is acknowledged to carry slightly more sensitivity to recession or sector-specific headwinds than AA-rated peers.
The banking sector concentrates in the A+ band, where federal capital adequacy rules and deposit-base strength produce some of the most reliable NNN tenant credit in the market:
- JPMorgan Chase (A+/Aa2)
- Bank of America (A+/Aa2)
- Wells Fargo (A+/A1)
- TD Bank (A+/Aa1)
Costco also sits at A+/A1. Retail and consumer bellwethers populate the A/A2 band, including Home Depot, Target, and Amazon. Chipotle, UPS, and Realty Income sit at A-/A3.
Lower Medium Grade: BBB+ / BBB / BBB- (Baa1 / Baa2 / Baa3)
The BBB tier is where most investment grade corporate borrowers sit. S&P describes the rating as “adequate capacity to meet financial commitments, but more subject to adverse economic conditions.” This is the largest IG rating band by number of issuers and dollar volume of debt outstanding.
BBB+/Baa1 tenants include Starbucks, Lowe’s, Best Buy, O’Reilly Auto Parts, and Circle K. The BBB/Baa1-Baa2 band includes Kroger, Taco Bell, Tractor Supply, and AutoZone.
BBB-/Baa3 is the investment grade floor. One notch lower and the issuer is no longer IG. That makes BBB-/Baa3 issuers the most closely watched credits in the market. Current BBB-/Baa3 NNN tenants include Dollar General, Dollar Tree, Casey’s General Stores, Fresenius Medical Care, and BioLife Plasma Services. Any negative rating action on these names would move them into high yield and force immediate repricing by institutional holders.
Non-Investment Grade (High Yield / Junk): BB+ Through B-
Below the IG threshold, the market language changes. These bonds are called speculative grade, high yield, junk, or below investment grade depending on who is speaking. They represent higher default risk and compensate investors with higher yields.
The BB tier (Ba at Moody’s) sits just below IG and represents what the agencies call “less vulnerable in the near-term but faces major ongoing uncertainties.” Historical default rates in the BB category run roughly 0.5 percent to 0.8 percent over one year. Current BB-rated NNN tenants include Popeyes, Nordstrom, Macy’s, and Wendy’s.
The B tier is “highly speculative,” with S&P noting the issuer “currently has the capacity to meet financial commitments, but adverse business, financial, or economic conditions will likely impair the capacity or willingness to meet commitments.” Historical one-year default rates in the B category run 1.5 percent to 2.5 percent. Examples include Pacific Dental Services, Aspen Dental, and Heartland Dental.
Substantial Risk and Default: CCC Through D
The CCC/Caa tier signals “substantial risk” and identifies issuers that are vulnerable to default and dependent on favorable conditions to meet financial obligations. Default rates accelerate sharply at this level. According to S&P’s 2024 Annual Global Corporate Default Study, roughly three-quarters of all 2024 defaulters were rated CCC/C at the start of the year.
CC, C, and D represent the final steps to default. D is the terminal rating, assigned when an issuer has actually failed to make payment or has filed for bankruptcy protection. In the NNN market, D ratings arrived in recent years for Rite Aid (Chapter 11 in October 2023), 99 Cents Only (Chapter 11 in April 2024, liquidation by June 2024), and Joann Fabric & Crafts (second bankruptcy and liquidation in 2025).
Rating Outlooks and CreditWatch
Beyond the letter grade itself, each agency attaches a directional outlook that indicates the likely direction of the rating over the next 12 to 24 months. The four categories are consistent across agencies:
- Stable: Rating unlikely to change in the medium term.
- Positive: Rating may be upgraded.
- Negative: Rating may be downgraded.
- Developing: Rating could move either direction depending on specific events (typically a pending merger, divestiture, or regulatory decision).
S&P uses CreditWatch (Positive, Negative, or Developing) to signal a more immediate review, usually resolved within 90 days. Moody’s equivalent is a “Review” designation. Fitch uses “Rating Watch.” These near-term flags carry more signal than outlooks because they mean a rating change is actively being evaluated.
An outlook change does not move the letter grade, but it reliably precedes ratings actions. A BBB- issuer placed on Negative outlook is a leading indicator that the credit may fall out of investment grade, which is why institutional holders often reduce exposure before the actual downgrade.
Historical Default Rates by Rating
S&P’s long-running default study provides the most complete picture of how ratings correspond to actual default experience. The table below shows average cumulative corporate default rates by initial rating for the full study period (1981 through 2024):
| Initial Rating | 1-Year Default Rate | 5-Year Cumulative | 10-Year Cumulative |
|---|---|---|---|
| AAA | 0.00% | 0.35% | 0.76% |
| AA | 0.02% | 0.30% | 0.81% |
| A | 0.05% | 0.55% | 1.90% |
| BBB | 0.16% | 1.83% | 4.40% |
| BB | 0.62% | 7.14% | 14.53% |
| B | 3.27% | 18.23% | 27.79% |
| CCC/C | 28.30% | 47.30% | 54.24% |
Source: S&P Global Ratings 2024 Annual Global Corporate Default and Rating Transition Study, published March 2025. Figures are issuer-weighted averages for nonfinancial corporates.
Two patterns jump out. First, the default rate within investment grade (AAA through BBB) is genuinely low, cumulating to roughly 4.40 percent over a full decade even at the BBB floor. Second, the jump from BB to B is dramatic: the 10-year default rate nearly doubles. The jump from B to CCC is larger still. These are the numbers behind the institutional aversion to holding anything below BB.
What Bond Ratings Do Not Tell You
Ratings are opinions, not guarantees. Understanding what they measure, and what they do not, is essential to using them well.
- Ratings measure default risk, not price volatility. A AAA-rated bond can lose significant market value if interest rates rise. The rating speaks to whether the issuer will pay, not to what the bond will trade for in the interim.
- Ratings are lagging in structural downgrades. When a business model deteriorates rapidly, ratings typically trail actual credit deterioration by several quarters. The agencies are slow to downgrade and slow to upgrade, and they know it.
- Ratings do not evaluate equity upside. A strong credit rating tells you the company will likely repay debt. It does not tell you whether the stock is a good investment or whether the sector is positioned to grow.
- Ratings can be wrong. The 2008 financial crisis exposed severe failures in the rating of mortgage-backed securities and structured products. Agencies have tightened methodologies since, but issuer-pay incentive conflicts remain.
- Ratings do not capture idiosyncratic lease risk. For NNN investors, a strong tenant rating says nothing about the specific store’s performance, the remaining lease term, the guarantee structure, or the residual value of the real estate.
For a deeper critique of agency limitations, see our analysis of the 10 biggest problems with credit rating agencies.
How Bond Ratings Drive NNN Real Estate Cap Rates
The bond rating scale does not stop at the bond market. In single-tenant net lease real estate, the same rating that determines an issuer’s borrowing cost also compresses or expands the cap rate on any property leased to that issuer. The pattern is consistent across sectors:
| Tenant Rating | Typical NNN Cap Rate Range | Buyer Pool |
|---|---|---|
| AAA to AA- | 4.00% to 5.25% | REITs, pensions, institutional 1031 buyers |
| A+ to A- | 5.00% to 6.00% | Family offices, institutional, sophisticated 1031 |
| BBB+ to BBB- | 5.50% to 7.00% | Broad 1031 market, private investors, family offices |
| BB+ to BB- | 6.50% to 8.00% | Yield-oriented private investors, value-add |
| B+ to B- | 7.50% to 9.50% | Opportunistic, short-term-hold, specialists |
| CCC and below | 9.00%+ with substantial risk premium | Distressed and special situations only |
Cap rate ranges are approximate Q1 2026 market observations and vary by sector, location, lease term remaining, and guarantee structure. See our full investment grade triple net lease guide for sector-specific detail.
The link between credit rating and cap rate is why credit rating changes move real estate values quickly. When an IG tenant is downgraded to HY, the institutional buyer pool narrows, the available financing gets more expensive, and cap rates widen to compensate. This happened visibly with Walgreens when Sycamore Partners took the company private in 2025 and the credit moved off the public rating scale altogether. The effect on Walgreens-tenanted real estate was immediate. Cap rates widened from the mid-5 percent range to 8.5 percent and higher.
The IG 180 Credit Tenant Rating Database
InvestmentGrade.com maintains the IG 180, our in-house database of credit tenant ratings covering 180-plus investment grade and near-IG NNN tenants across every major retail, healthcare, financial, and industrial sector. Each entry includes the current S&P and Moody’s ratings, rating outlook, sector, store count, typical cap rate range, lease structure, and a detailed credit analysis. The index is updated quarterly to reflect rating actions as they happen.
Access the complete IG 180 credit tenant rating database to browse by sector, rating tier, or parent company.
Frequently Asked Questions
Related Reading
- Investment Grade Bonds, Yields, Credit Ratings & Sector Analysis (cluster anchor)
- Investment Grade Bonds vs High-Yield Bonds: 25-Year Comparison
- The Role of Credit Rating Agencies in Determining Investment Grade Status
- Moody’s 2026 Investment Grade Ratings: What Investors Must Know
- Investment Grade Scoring: Decoding the Language of Credit Ratings
- What Investment Grade Actually Means: BBB- and Why It Matters
- What Is Investment Grade? Complete Guide
- Investment Grade Triple Net Lease: 2026 Guide
- IG 180 Credit Tenant Rating Database
This page is part of the InvestmentGrade.com bond cluster and is updated quarterly to reflect current rating actions and market data. Last updated Q1 2026.
