A guide to municipal bond ratings

Standard & Poor's is one of the most respected rating agencies of municipal bonds in the industry today. That being said, I felt it important to provide S&P's definition of various grades of municipal bonds.

Investment Grades:

AAA - Highest rating assigned by S&P. Extremely strong capacity to make timely payments.

AA - Differs only a small degree from highest-rated obligations. Very strong capacity to make timely payments.

A - Somewhat more susceptible to the adverse effects of changes in economic conditions. Still strong capacity for timely payments.

BBB - Adequate protection parameters. Adverse economic conditions and changing circumstances may lead to weakened capacity for payments.

Speculative Grades:

BB - Less vulnerable to nonpayment than other speculative issues. Faces major uncertainties and may lead to inadequate capacity to meet payments.

B - Has capacity to make payments, but any adverse conditions would be likely to impair the capacity for timely payments.

CCC - Vulnerable to nonpayment and is dependent upon favorable conditions to make payments.

CC - Currently highly vulnerable to nonpayment.

C - May be used to cover a situation of bankruptcy, but payments are being continued.

D - Payment default. When payments are not made on date due. Also used upon the filing of bankruptcy or the taking of a similar action if payments are jeopardized.

S&P is only one of several major rating services and their opinion or definition of a grade of bond may vary from that of other rating services. For more information, call me at 689-8704 or e-mail William.a.creekbaum@smithbarney.com.

• William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of SmithBarney, a financial services firm serving Northern Nevada at 6005 Plumas Street, Ste. 200 Reno, NV 89509.