For large non-financial service firms For financial service firms (default spreads are slighty different)
If interest coverage ratio is       If long term interest coverage ratio is
> ≤ to Rating is Spread is greater than ≤ to Rating is Spread is
-100000 0.199999 D2/D 19.00% -100000 0.049999 D2/D 19.00%
0.2 0.649999 C2/C 15.50% 0.05 0.099999 C2/C 15.50%
0.65 0.799999 Ca2/CC 10.10% 0.1 0.199999 Ca2/CC 10.10%
0.8 1.249999 Caa/CCC 7.28% 0.2 0.299999 Caa/CCC 7.28%
1.25 1.499999 B3/B- 4.42% 0.3 0.399999 B3/B- 4.42%
1.5 1.749999 B2/B 3.00% 0.4 0.499999 B2/B 3.00%
1.75 1.999999 B1/B+ 2.61% 0.5 0.599999 B1/B+ 2.61%
2 2.2499999 Ba2/BB 1.83% 0.6 0.749999 Ba2/BB 1.83%
2.25 2.49999 Ba1/BB+ 1.55% 0.75 0.899999 Ba1/BB+ 1.55%
2.5 2.999999 Baa2/BBB 1.20% 0.9 1.199999 Baa2/BBB 1.20%
3 4.249999 A3/A- 0.95% 1.2 1.49999 A3/A- 0.95%
4.25 5.499999 A2/A 0.85% 1.5 1.99999 A2/A 0.85%
5.5 6.499999 A1/A+ 0.77% 2 2.49999 A1/A+ 0.77%
6.5 8.499999 Aa2/AA 0.60% 2.5 2.99999 Aa2/AA 0.60%
8.50 100000 Aaa/AAA 0.45% 3 100000 Aaa/AAA 0.45%
For smaller and riskier non-financial service firms
If interest coverage ratio is      
greater than ≤ to Rating is Spread is
-100000 0.499999 D2/D 19.00%
0.5 0.799999 C2/C 15.50%
0.8 1.249999 Ca2/CC 10.10%
1.25 1.499999 Caa/CCC 7.28%
1.5 1.999999 B3/B- 4.42%
2 2.499999 B2/B 3.00%
2.5 2.999999 B1/B+ 2.61%
3 3.499999 Ba2/BB 1.83%
3.5 3.9999999 Ba1/BB+ 1.55%
4 4.499999 Baa2/BBB 1.20%
4.5 5.999999 A3/A- 0.95%
6 7.499999 A2/A 0.85%
7.5 9.499999 A1/A+ 0.77%
9.5 12.499999 Aa2/AA 0.60%
12.5 100000 Aaa/AAA 0.45%
[1]
Aswath Damodaran:
If yes, fill in the attached worksheet on operating leases
[2]
Aswath Damodaran:
If your most recent year's operating income is unusually low or high, you can use the average operating income from the last few years.
[3]
Aswath Damodaran:
Enter the interest expense from the most recent income statement.
[4]
Aswath Damodaran:
I use a 10 year government bond rate.