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h COMPARISON OF RATINGS* Standard & Poor's Moodv's AAA = Extremely Strong Aaa = Exceptional AA+ = Very Strong Aal = Excellent AA = Very Strong Aa2 = Excellent AA- = Very Strong Aa3 = Excellent A+ = Strong A1 = Good A = Good A- = Good A3 = Good BBB+ = Good Baal = Adequate BBB = Adequate Baa2 = Adequate BBB- = Adequate Baa3 = Adequate BB+ = Marginal Bal = Questionable BB = Marginal Ba2 = Questionable BB- = Marginal Ba3 = Questionable B+ = Weak B1 = Poor B = Weak B2 = Poor B- = Weak B3 = Poor '�A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or its ability to pay a bond's principal and interest in a , timely fashion. Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade. Different rating services use the I same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves. The bond rating is assigned prior to the bond sale. It reflects the agency's judgment of the credit- worthiness of the issuer, and is based on a number of objective and subjective criteria including debt per capita, overlapping debt of other political subdivisions, tax collection experience, tax base, employment levels, and the quality of the primary source of repayment of the bonds. Obtaining a rating is relatively expensive. The cost is normally recovered in more favorable interest rates on the bonds. In addition, most institutional investors (banks, insurance companies) may not or will not buy unrated bonds. If an issue is relatively small (say, less than $1 million), unrated bonds can be and have been successfully sold, but the market is limited and the purchasing underwriter will offer a price that reflects the additional costs of re-offering the bonds. Excerpt from the Handbook for Minnesota Cities