As far as I know, there are two categories of ratings.
1. Issuer Rating
This is a rating assigned to the entire organization. E.g. Rating that indicates the ability of Reliance Industries to pay off all its lenders as per debt covenants (terms and conditions). Typically the average credit rating of all bonds is approximately the rating of the entire organization.
2. Issue Rating
This is a rating assigned to a specific debt issued by the issuer. E.g. Rating that indicates the ability of Reliance Industries to pay off ONLY that specific debt issued as per debt covenants.
Let’s say a company has raised debt using two bonds of 100 each. Lets call them bond A and bond B. Let’s say, one bond A is “senior” to bond B. It means that in an event the company is unable to pay off its bonds, it will have to sell its assets (property, plant, land, etc.). Holders of Bond A will have first claim to the assets followed by holders of Bond B. So, ceteris paribus, it is possible that during bad times, Bond B will have a poor credit rating than Bond A.
Hope it helps.
Mahesh
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