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This is where credit ratings become vital. They aren’t just numbers or alphabets – they represent an expert evaluation of a company’s ability to meet its debt obligations. A downgrade can send bond prices plummeting, leaving investors with significant losses. So, when you see a bond offering a 12% yield, you need to ask: why is the return so high? Typically, it’s because the company issuing it carries more risk.
For instance, look at the IL&FS and DHFL cases. Both of these companies were once considered reliable issuers of bonds, with investment-grade ratings (AA+). IL&FS, a major infrastructure player, shocked the market in 2018 when it defaulted on its debt after a series of financial mismanagement issues came to light. Investors were surprised by the company’s collapse, as it had been offering bonds with relatively high yields, which many had viewed as a safe bet.
Similarly, Dewan Housing Finance Limited (DHFL) also faced a major crisis after the IL&FS collapse in 2018, triggering a liquidity crunch due to a mismatch between its short-term borrowings and long-term lending. The company went into default as in 2019 and its financial troubles led to a dramatic downgrade in its ratings and a massive loss of investor confidence.
For instance, look at the IL&FS and DHFL cases. Both of these companies were once considered reliable issuers of bonds, with investment-grade ratings (AA+). IL&FS, a major infrastructure player, shocked the market in 2018 when it defaulted on its debt after a series of financial mismanagement issues came to light. Investors were surprised by the company’s collapse, as it had been offering bonds with relatively high yields, which many had viewed as a safe bet.
Similarly, Dewan Housing Finance Limited (DHFL) also faced a major crisis after the IL&FS collapse in 2018, triggering a liquidity crunch due to a mismatch between its short-term borrowings and long-term lending. The company went into default as in 2019 and its financial troubles led to a dramatic downgrade in its ratings and a massive loss of investor confidence.
