Ratings, Interest Coverage Ratios and Default Spread

What is this? This is a table that relates the interest coverage ratio of a firm to a "synthetic" rating and a default spread that goes with that rating. The link between interest coverage ratios and ratings was developed by looking at all rated companies in the United States. The default spreads are obtained from traded bonds. Adding that number to a riskfree rate should yield the pre-tax cost of borrowing for a firm.

Date of Analysis: Data used is as of January 2023

For non-financial service firms only

> ≤ to Rating is Spread is
-100000 0.199999 D2/D 20.00%
0.2 0.649999 C2/C 17.50%
0.65 0.799999 Ca2/CC 15.78%
0.8 1.249999 Caa/CCC 11.57%
1.25 1.499999 B3/B- 7.37%
1.5 1.749999 B2/B 5.26%
1.75 1.999999 B1/B+ 4.55%
2 2.2499999 Ba2/BB 3.13%
2.25 2.49999 Ba1/BB+ 2.42%
2.5 2.999999 Baa2/BBB 2.00%
3 4.249999 A3/A- 1.62%
4.25 5.499999 A2/A 1.42%
5.5 6.499999 A1/A+ 1.23%
6.5 8.499999 Aa2/AA 0.85%
8.50 100000 Aaa/AAA 0.69%