[Altavia]

Originally Posted by jimhoward

My bet is that they figure they can sell them more advantageously in a private offering without the expense of getting them rated. ....but just a guess.

Correct

Demystifying Non-Rated Bonds

We believe one of the most common reasons is that the company didn’t want to pay for a rating. Yes, rating agencies charge a fee to research a company’s creditworthiness, write a report, and stamp the bond with a letter of the alphabet and their implied “seal of approval.”

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Unrated Does Not Equal a “Red Flag” 

As always, it depends.

If a company chooses not to pay for a rating because it either can’t afford one or it doesn’t want a third-party research firm bringing investor attention to its challenges, those are, of course, factors to be concerned about.

But in our work in this niche, we have discovered many other reasons that companies choose not to pay for credit ratings – none of which we would put in the “red flag” category. Some common examples:

They already have relationships with lenders who understand their business well so they don’t need the rating

The cost of the rating is unreasonably high versus the amount of capital they are trying to raise
[*]They believe the rating agencies focus too much on characteristics unrelated to creditworthiness, such as sustainability or promoting social justice
[*]They operate in a small, niche industry that the rating agencies do not cover well and, as a result, have mis-rated the company’s securities in the past
[*]They have a small finance department and do not have the time or the desire for regular meetings and reporting to ratings agencies in addition to their investors and Board of Directors

To us, these reasons are not “red flags.”

]In fact, one can argue that management teams and Boards that thoughtfully decide not to pursue ratings are demonstrating signs of financial strength and/or prudence.

They simply don’t believe they need one to raise capital or they conclude that the potential benefits of a rating would not justify the cost.

Either of these decisions reflect qualities we like to see—quite the opposite of a red flag.