Premium
The Cost of Borrowing: Understanding Credit Ratings
Author(s) -
Warmath Alexis,
Kreps Bart
Publication year - 2015
Publication title -
journal ‐ american water works association
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.466
H-Index - 74
eISSN - 1551-8833
pISSN - 0003-150X
DOI - 10.5942/jawwa.2015.107.0171
Subject(s) - creditor , business , credit rating , finance , rate of return , debt , order (exchange) , investment (military) , credit enhancement , bond credit rating , probability of default , interest rate , credit risk , credit reference , politics , political science , law
With more than $1 trillion in infrastructure investment needs over the next 25 years, many water, wastewater, and stormwater utilities across the United States will need continued access to the capital markets as a source for financing system improvements. And just as for someone borrowing money to buy a house, a utility's credit rating is a key component in determining its cost of debt or a creditor's required rate of return to compensate for the risk of lending money. Central to this discussion is the role that rating agencies play in evaluating credit. While credit ratings are not required in order to issue municipal securities, they provide a key benchmark and guidance to the market on the probability of default.