Moody’s Ratings is one of the three major credit rating agencies, alongside S&P Global Ratings and Fitch Ratings. Its long-term scale runs from Aaa to C, and the investment grade line sits at Baa3: issuers rated Baa3 or higher are investment grade, and those rated Ba1 or lower are speculative grade, also called high yield. This page explains the Moody’s scale, outlooks and reviews, short-term ratings, notable rating actions, and what the ratings mean for investment grade bond and net lease real estate investors. For the full cross-agency picture, see the investment grade guide.
The Moody’s Long-Term Rating Scale
Moody’s long-term scale has 21 notches. From Aa through Caa, a numerical modifier shows where an issuer sits within the category: 1 is the higher end, 2 the middle, and 3 the lower end.
| Moody’s | S&P / Fitch equivalent | Grade | Moody’s definition (summarized) |
|---|---|---|---|
| Aaa | AAA | Investment grade | Highest quality, lowest level of credit risk |
| Aa1, Aa2, Aa3 | AA+, AA, AA‑ | Investment grade | High quality, very low credit risk |
| A1, A2, A3 | A+, A, A‑ | Investment grade | Upper-medium grade, low credit risk |
| Baa1, Baa2 | BBB+, BBB | Investment grade | Medium grade, moderate credit risk, may have some speculative characteristics |
| Baa3 | BBB‑ | Lowest investment grade | Medium grade, moderate credit risk |
| Ba1, Ba2, Ba3 | BB+, BB, BB‑ | Speculative grade | Speculative, substantial credit risk |
| B1, B2, B3 | B+, B, B‑ | Speculative grade | Speculative, high credit risk |
| Caa1, Caa2, Caa3 | CCC+, CCC, CCC‑ | Speculative grade | Poor standing, very high credit risk |
| Ca | CC | Speculative grade | Highly speculative, likely in or very near default, with some prospect of recovery |
| C | C / D | Speculative grade | Lowest rated, typically in default, with little prospect of recovery |
Each Moody’s notch lines up with an S&P and Fitch notch, though the agencies can rate the same issuer differently. See the bond ratings chart for all three scales side by side and what investment grade actually means for why the Baa3/Ba1 line matters.
Outlooks and Reviews
Moody’s attaches an outlook to most long-term ratings to signal the likely direction of the rating over the medium term:
- Stable: a rating change is unlikely over the medium term.
- Positive: the rating may be raised.
- Negative: the rating may be lowered.
- Developing: the rating could move in either direction, often depending on a pending event such as an acquisition.
A review is a stronger signal. When Moody’s places a rating on review for upgrade, review for downgrade, or review with direction uncertain, it is considering a change in the near term, and reviews are usually concluded within about 90 days. For an issuer rated Baa3, a review for downgrade raises the risk of falling to speculative grade, where some investors are no longer able to hold its bonds.
Short-Term Ratings
Moody’s short-term scale applies to obligations with an original maturity of 13 months or less, such as commercial paper:
- Prime-1 (P-1): superior ability to repay short-term obligations.
- Prime-2 (P-2): strong ability to repay.
- Prime-3 (P-3): acceptable ability to repay.
- Not Prime (NP): does not fall within any Prime category.
Short-term and long-term ratings are linked but not identical; two issuers with the same long-term rating can carry different short-term ratings depending on liquidity.
The May 2025 U.S. Sovereign Downgrade
On May 16, 2025, Moody’s lowered the United States’ long-term issuer and senior unsecured ratings from Aaa to Aa1, with a stable outlook. Moody’s cited the rise in government debt and interest payment ratios over more than a decade to levels significantly higher than similarly rated sovereigns, and projected federal debt reaching about 134% of GDP by 2035, up from 98% in 2024. Moody’s had rated the United States Aaa since 1917. With the action, all three major agencies rate the U.S. one notch below the top:
| Agency | U.S. rating | Since |
|---|---|---|
| S&P Global Ratings | AA+ | August 5, 2011 |
| Fitch Ratings | AA+ | August 1, 2023 |
| Moody’s Ratings | Aa1 | May 16, 2025 |
U.S. Companies Rated Above the U.S. Government
A few U.S. corporations carry the top Moody’s rating, one notch above the U.S. government:
| Company | Moody’s | S&P |
|---|---|---|
| Microsoft | no verified rating | no verified rating |
| Apple | Aaa | AA+ |
Moody’s upgraded Apple to Aaa on December 21, 2021, so Apple is split rated, Aaa at Moody’s and AA+ at S&P. Johnson & Johnson is also rated at the top of both agencies’ scales. Ratings in the table update from our ratings database.
Rating Actions on Net Lease Tenants
Many companies that lease net lease real estate are rated by Moody’s, including these examples:
- Advance Auto Parts. Moody’s currently rates Advance Auto Parts no verified rating, below investment grade; S&P rates it BB.
- Walgreens. Walgreens Boots Alliance lost its investment grade ratings before it was taken private by Sycamore Partners in 2025. Our ratings database now shows no public rating from Moody’s, S&P or Fitch for the company. Leases are evaluated on the specific tenant entity, financial reporting and any guarantee.
- Healthcare services. Private equity owned dental and eye care operators are rated speculative grade where they are rated at all:
| Company | Business | S&P | Moody’s |
|---|---|---|---|
| Heartland Dental | Dental support organization | B | no verified rating |
| Aspen Dental (The Aspen Group) | Dental support organization | B- | no verified rating |
| Smile Brands | Dental support organization | NR | NR |
| EyeCare Partners | Eye care (optometry and ophthalmology) practices | CCC- | no verified rating |
Ratings update from our ratings database; NR means the agency does not rate the company. A corporate rating applies to a lease only if the rated entity signs or guarantees it.
Rating actions can affect net lease pricing and financing, because they change the buyer pool and lender appetite for a tenant. The timing and size of any effect depend on the lease, the guarantor, the property, and market conditions. See the tenant ratings database for current ratings on 190 net lease tenants.
How Ratings Relate to Defaults
Rating agencies publish default studies that show how often issuers in each category have defaulted. Moody’s publishes its own annual default study; the figures below are from S&P’s comparable study. The pattern is the same at both agencies: default rates rise sharply below the investment grade line, though each agency’s numbers differ because of different rated populations and methods.
| Rating (S&P, global corporates, 1981 to 2024) | 1-year average default rate | 5-year cumulative | 10-year cumulative |
|---|---|---|---|
| AAA | 0.00% | 0.34% | 0.67% |
| AA | 0.02% | 0.28% | 0.65% |
| A | 0.05% | 0.39% | 1.03% |
| BBB | 0.14% | 1.36% | 2.86% |
| BB | 0.56% | 5.75% | 10.44% |
| B | 2.93% | 15.60% | 22.02% |
| CCC/C | 26.12% | 46.53% | 50.43% |
| Investment grade | 0.08% | 0.77% | 1.69% |
| Speculative grade | 3.54% | 13.64% | 19.15% |
Source: S&P Global Ratings, “Default, Transition, and Recovery: 2024 Annual Global Corporate Default And Rating Transition Study,” March 27, 2025, table 24.
In the same study, 9.6% of rated issuers were upgraded and 5.8% downgraded in 2024. Most issuers’ ratings do not change in a given year.
What Moody’s Ratings Mean for Net Lease Investors
A tenant’s credit rating is one input into net lease value, alongside the lease term, rent increases, location, real estate quality, and who signs or guarantees the lease. The table shows median asking cap rates on active listings InvestmentGrade.com tracks, grouped by the tenant’s rating category.
| Tenant rating category (S&P, or Moody’s equivalent) | Median asking cap rate | Middle half of listings | Listings (tenants) |
|---|---|---|---|
| AA | 5.25% | 4.75% to 6.25% | 61 (7) |
| A | 5.25% | 5.00% to 6.00% | 327 (19) |
| BBB | 6.65% | 6.00% to 7.39% | 1,148 (24) |
| BB | 6.25% | 5.50% to 7.25% | 225 (16) |
| B | 7.00% | 5.75% to 8.35% | 385 (10) |
| Not publicly rated (private companies) | 6.08% | 5.20% to 7.73% | 722 (23) |
Active listings InvestmentGrade.com tracks with an asking cap rate (stated, or computed from stated income and price when no rate is stated), listings last observed October 16, 2026, grouped by the rating of tenants rated in their own name; franchised brands rated only through a parent company are left out because a parent’s rating applies to a franchisee’s lease only if the parent signs or guarantees it. Asking cap rates are not closed-sale cap rates, and location, lease term, and ground lease structure move cap rates as much as the rating. Categories with fewer than 10 listings are not shown (CCC and lower).
The relationship is not a straight line. In current listings, lower-rated groups do not always show higher median asking cap rates, because the mix of tenants, property types, lease terms, and locations differs from group to group. Compare individual tenants and leases rather than relying on the rating alone. See the investment grade triple net lease guide for more.
Own a Property Leased to a Rated Tenant?
If your tenant’s rating or outlook has changed, its value and financing options may have changed too. Talk with us about sale or refinance options.
Frequently Asked Questions
What is the current Moody’s rating for the United States?
Aa1 with a stable outlook. Moody’s lowered the U.S. from Aaa to Aa1 on May 16, 2025, citing rising government debt and interest payment ratios.
Which U.S. companies does Moody’s rate Aaa?
Microsoft, Johnson & Johnson, and Apple are rated Aaa by Moody’s. Apple was upgraded to Aaa on December 21, 2021 and is rated AA+ by S&P. Ratings change, so confirm with Moody’s or the company.
What is the lowest Moody’s rating that is investment grade?
Baa3. One notch lower, Ba1, is the highest speculative grade rating. The line matters because many investment mandates and investment grade indexes include only bonds rated Baa3/BBB‑ or higher.
How does the Moody’s scale compare with S&P’s?
The scales run parallel: Aaa equals AAA, Aa1 to Aa3 equal AA+ to AA‑, A1 to A3 equal A+ to A‑, and Baa1 to Baa3 equal BBB+ to BBB‑. The agencies can still rate the same issuer differently.
What does a Moody’s review for downgrade mean?
Moody’s is considering lowering the rating in the near term. Reviews are usually concluded within about 90 days and can end in a downgrade or a confirmation of the rating.
How do Moody’s rating changes affect net lease property?
A rating change can affect the buyer pool, financing terms, and pricing for properties leased to that tenant. The effect depends on the lease, the guarantor, the property, and market conditions, and it is not automatic or immediate.
Related Reading
Educational content only. InvestmentGrade.com is a commercial real estate brokerage and educational publisher. We do not sell, broker, underwrite, or solicit any bonds, securities, or investment products. Yields, ratings, and prices referenced fluctuate continuously and are sourced from public market data as of the date noted. Nothing on this page constitutes investment advice, an offer to sell, or a solicitation to buy any security. Consult a licensed broker-dealer, registered investment advisor, or tax professional before making any investment decision. For SEC investor education, visit investor.gov.
